Key takeaways

  • There are three main options for financing business equipment: a loan, a lease or sale-leaseback
  • Different lenders may specialize in different kinds of equipment loans, so it is important to compare lenders that meet your needs
  • When applying for an equipment loan, you will need to provide documents such as a business license and registration, business plan, business bank statements, business tax returns and current financial statements.

Equipment loans — and leases — are a good resource when your business needs equipment it can’t buy outright. There are many options out there, including SBA 504 loans, so you will need to research carefully to find the best equipment loan for your business.

What is an equipment loan?

An equipment loan is a small business loan you can use to help fund equipment for a business. Small business equipment loans work similarly to any other business loan, and they are offered by many types of lenders. You can use the loan to buy, repair or replace equipment.

Business equipment is any tangible asset that you use for your business. This includes company vehicles, machinery, computers and furniture. It also includes any equipment you might need when you’re just opening, though startup loans may be more restrictive.

How to get equipment financing

Ideally, you should go into equipment financing with an idea of the type of equipment your business needs — and where it will get the funding. Lenders may offer both loans and leases, and you can get financing from a variety of sources. It is important to carefully consider the type of financing you need while comparing multiple lenders to find the most cost-effective option.

1. Know what kind of equipment you want

When you apply for a loan, the lender will want to know what equipment you plan to buy. This helps them understand the loan amount. It also gives them information on the specific equipment that will act as collateral for your loan.

Before you apply for an equipment loan, make sure you understand the full loan amount and the monthly payments. Use a business loan calculator to get an idea of your potential monthly payment. It’s important to make sure you can afford the loan before getting it.

2. Decide between an equipment loan and an equipment lease

There are three main options for financing business equipment: loans, leases and sale-leasebacks.

Even the best equipment loan may require a down payment of 10 to 20 percent, but you own the equipment as soon as the purchase is made.

On the other hand, equipment leasing doesn’t usually require a down payment. However, you don’t own the equipment unless you opt to purchase it at the end of your lease. Think of equipment leasing as long-term renting.

Sale-leasebacks work differently. If your business has money tied up in its equipment, you may be able to sell it and then lease it from the purchaser. While you will have a monthly payment, your business can use the sale money as working capital.

Here are the key differences:

Equipment loan Equipment lease Sale-leaseback
Your business owns the equipment as soon as the purchase is made You don’t own the equipment until it is paid off and you agree to buy it fully. You also have the option to return the equipment at the end of the lease period Your business sells its equipment and leases it back through the purchaser, freeing up working capital
Down payment often required No down payment required No down payment required
Loan terms can be up to 10 years Typically come with a shorter term than a loan Often longer loan terms, though length depends on lender

Equipment leases are a great option if the business equipment you need becomes obsolete quickly. You don’t have to worry about getting rid of outdated equipment. You can simply end your lease.

Equipment loans are a better option if you want to own the equipment and you have the money for the down payment on the equipment. And if you need to free up working capital later, you could consider a sale-leaseback. Just keep in mind that your business will no longer own the equipment.

3. Assess your qualifications

When it comes to equipment financing, lenders will typically look at the length of time you’ve been in business, your business credit score and annual revenue to decide if you qualify.

Online lenders will typically have more lenient requirements than banks or credit unions. At least two years in business is the standard requirement, although you may be able to qualify for a startup equipment loan. Some online lenders consider businesses as young as six months.

Your personal and business credit score will also play a big role in your eligibility. Many lenders will want to see that each owner has fair credit — at minimum. It may also consider your business credit score if your business has previously taken on debt.

Finally, your annual revenue will be considered. A bank will typically require a higher annual revenue than online lenders. But even the most lenient online lender, Funding Circle, has a minimum annual revenue requirement set at $50,000 for its equipment loans.

Bankrate tip
Qualifications vary from lender to lender, and they may have other factors they check to decide if your business qualifies for the loan. Some lenders may require you to have a business checking account if you don’t already. Talk to specific lenders to find out what exactly you need.

4. Seek lenders that match your qualifications and needs

Both traditional lenders — like banks and credit unions — and online lenders offer equipment loans. There are even lenders that specialize in equipment loans, such as TAB Bank and Triton Capital. In many cases, lenders offer large loans with long terms to fund larger equipment expenses.

Research several options and look for lenders that best fit your needs. Some lenders may specialize in construction equipment loans, for example. Other lenders may work specifically with new businesses.

Loan Amount Min. Time in Business Min. Annual Revenue
Creditfy Up to $10 million 6 months $100,000
SMB Compass $25,000 to $5 million 6 months $100,000
National Funding Up to $150,000 6 months $250,000
Triton Capital $500,000 2 years $350,000
Bank of America Starting at $25,000 2 years $100,000 to $250,000

This is not a definitive list. Check local banks and credit unions in addition to nationally available options to find a lender that fits your business’s needs.

5. Compare lenders and loans

Once you’ve found some lenders with loan options you likely qualify for, compare your options. The right lender may differ for each business. If the lender offers a way to prequalify with a soft credit pull, use it. This will let you compare rates and amounts without hurting your credit score.

There are several factors to consider when comparing equipment loans. The amount you can borrow, the down payment requirement and the interest rate — among other points — should influence your decision.

  • Loan amount: The loan amount varies by lender, but expect it to cover between 80 and 125 percent of the equipment’s cost.
  • Down payment: An equipment loan may require a down payment between 10 and 20 percent.
  • Interest rate: Both your business’s creditworthiness and current market forces impact business loan interest rates. Rates can range from the single digits to well over 30 percent.
  • Repayment terms: Repayment terms typically range from six months to 10 years. Some lenders may offer multiple payment frequency options, such as monthly, quarterly, semi-annual or annual payments.
  • Fees: Common business loan fees include administrative fees, application fees, late fees and origination fees. Some fees are flat, but others may equal a percentage of the loan amount, potentially tacking on thousands in added costs.
  • Payment reporting: Equipment loans can help you build your business credit score, so confirm with each lender if payments are reported to any credit bureaus, such as Dun & Bradstreet, Equifax or Experian.
  • Pre-approval period: Lenders may give you a bit of time to shop around and find the best deal on your equipment.

Take in the full picture of the loan costs and how the payments will impact your business. Consider interest rates, fees, down payments and other factors to compare each lender’s options.

6. Gather documents and apply

When you are ready to apply, take your time to prepare your loan application and the required documents. You will typically need to provide documents that provide business financial information and prove your business exists. Typical documents include:

  • Business license and registration
  • Business plan
  • Business bank statements from the past year
  • Business tax returns from the past three years
  • Current financial statements, such as accounts receivable, balance sheet and income statement

Understand the specific requirements of your lender to help you gather exactly what you need.

Bottom line

Getting an equipment loan is an exciting step in building your business. While finding a loan and going through the loan application process can be tedious, it will be well worth it if it helps your business move forward.

Do your research and follow these steps as you pursue a business equipment loan.

Frequently asked questions

  • It depends on the state of your business, the lender you pick and the type of equipment you need. If you exceed the minimum requirements set by your lender, you’ll have a higher chance of approval, especially since the equipment itself secures the loan. However, this is not a guarantee, as there are many factors that go into getting a business loan.
  • Business equipment includes any asset you use for your business, such as company vehicles, machinery, computers and furniture.
  • Check with each lender you want to apply with. Lenders typically look at the length of time you’ve been in business, your business credit score and business revenue to decide if you qualify. The qualifications vary from lender to lender.
  • A loan is a good option for equipment you plan on keeping for a long time. Depending on the lender, an equipment loan may require a down payment of 10 to 20 percent, but you own the equipment as soon as the purchase is made. With an equipment lease, monthly payments are typically smaller than loan payments. Plus, no down payment is usually required, but you don’t own the equipment unless you opt to purchase it at the end of your lease.