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Equipment Financing

Use equipment financing to purchase new equipment for your business. The equipment will act as collateral for the funding.

Equipment Financing

Equipment financing is small business funding designed to supply you with money for new equipment, like electronics, vehicles, machinery, or whatever specific type of equipment you use in your industry. This type of funding can only be used for equipment purchases because the new equipment will be used as collateral for the funding. That means if you default on the funding, you lose the equipment along with however much you’ve paid back so far.

Equipment Financing at a Glance

Compared to many other types of business funding options, equipment financing can be a little more straightforward. This is because of the automatic collateral associated with this type of funding. Here are the main points:

  • The funding amount for equipment financing can be up to $5 million – or, 100-percent of the value of the equipment you are purchasing. Since the equipment will be used as collateral for the funding, the provider will not want to fund more than the value of the equipment.
  • Equipment financing has a wide interest rate range. You could pay anywhere from 7.5-percent up to 45-percent. While determining your interest rate, the provider will try to determine how much of a risk it is to fund your business.
  • Your funding term could be anywhere from 12 months to 72 months.

If your provider quotes you a high interest rate, you might want to consider what that means. It could be that the lender thinks you are a risky investment. That’s a warning flag. Before taking out equipment financing, you should be confident that you’ll be able to pay back the funding. Remember, you do not want to end up losing your equipment because you cannot pay back the funding.

Main Advantages

The main benefit of equipment financing is that most businesses will be approved for this type of funding.

Disadvantages

The biggest disadvantage and risk associated with equipment financing is that you will default on the funding and lose the equipment. But even if you pay it back, the equipment might no longer be useful by then.

Depending on your term and the size of your funding, you might not be able to secure another source of funding while you are paying back your equipment financing.

Your new equipment will likely come with its own expenses, in the form of maintenance and insurance payments. Be sure to factor in these costs when creating your budget plan.

Equipment Financing Wrap-Up

There are many different types of providers that offer equipment financing. These providers will often specialize in a certain industry. Most industries are represented. That means that if you need new equipment, there is likely an equipment financing company ready to work with you.

Is this financial product right for you?

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