When you need business equipment, taking out a business equipment loan may be the best financial move. This type of loan can be used to purchase nearly any type of business equipment. The amount you can borrow depends on the type of equipment and whether it is new or used equipment.
How Equipment Loans Work
If you have a car loan then you have the basic idea of how an equipment loan works. The lender views the equipment as a form of collateral on the loan, this makes it so you will not have to put any additional collateral down to secure the loan.
Business equipment loans typically have fixed interest rates, ranging from 8% to 30%. The loan term length is also common fixed as well, making it possible for businesses to have low monthly payments.
How Long is an Equipment Loan Term?
The length of an equipment loan term depends on the type of equipment you are financing, its cost and its life expectancy. Most lenders will not finance business equipment with a loan term that exceeds the expected life of the equipment. Business equipment loan terms can be as short as 2 years to as long as 7 years.
Pro’s and Con’s to Business Equipment Loans
- Quick access to cash
- Limited paperwork
- Equipment serves as collateral
- Builds credit
- Potential tax benefits
- Bad credit is okay
- Equipment could be obsolete by the time the loan is fully repaid
- Could tie up credit, preventing you from applying for other loans
- May need to depreciate equipment, so you can’t deduct full cost each year
- Requires additional expenses, like insurance and maintenance
Most businesses will qualify for equipment loans. The amount you will qualify for, interest rate and loan terms are determined by your businesses credit history and the equipment you are purchasing. If you need new equipment to keep your business operating smoothly, a business equipment loan may be the right option.
Chris Fuller went to the University of South Florida and has worked in the financial sector for over 20 years. He has extensive experience in all aspects of personal and small business lending, from personal loans, equipment finance to cash flow based solutions for small mom and pop businesses, and large corporations.