Equipment financing is a commercial loan that you can take out to purchase equipment for your business, allowing you to access the assets you need without buying them outright. Since the equipment itself usually secures the loan, if you default on payment, the financing company would take and sell the equipment to recoup losses. On average, equipment loans last three to seven years
Business owners can use equipment loans to finance assets such as commercial ovens, desks, shelves and displays, vehicles and manufacturing equipment. You’d be required to make period repayments consisting of interest and principle for a fixed amount of time. Once you pay off the loan, you’d gain full ownership of the equipment.
Some lenders may offer new or used equipment financing. A lender typically extends the majority of the capital needed (usually at least 80%), requiring your business to put down the remainder and pay the company back with interest in monthly increments.
Before applying for an equipment loan from an online or traditional lender, you should get your business paperwork in order. First, make sure you have a thorough business plan that explains why you need the equipment and how it will help you expand your business. Determine exactly what kind of loan terms will work for you, including how much you are prepared to pay on a monthly basis.
Check both your business personal credit score. Lenders will assess your credit, and it would be beneficial to have the best score possible. Be sure to check for errors if your score is not what you were expecting. If your credit score is not where it should be, it might make sense to hold off on pursuing a loan until you can do some credit repair work. Additionally, you may need to meet minimum revenue and time in business requirements. The specific requirements vary from lender to lender.
When you’ve found an option that seems to meet your needs, be sure to read the fine print before signing a loan agreement. You might also want to have a trusted financial advisor review it as well. After signing, your loan may be funded within a few days if you’ve chosen an online lender. Loans from traditional sources may take a bit longer to fund.