Equipment financing is a tool that allows your business to raise capital against the value of the asset you intend to buy. Generally, you securitize the financed amount against the equipment, helping keep interest rates lower.

If you’re keen to learn more about small business equipment financing and when small business loans can be a viable solution to drive your business forward then you’re in the right place.

Read on to discover everything about American equipment finance.

If you’re not sure which equipment financing companies are the best fit for your business, we recommend using Become’s unique matching algorithm, connecting you with the best equipment finance companies in the market. Only the lenders who fit your business profile and requirements are provided.

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For many businesses, the right equipment is necessary to get the job done. In some industries, new equipment might even provide the competitive edge required to get ahead of the competition. Whatever the sector your business operates in, there’s probably an asset that your business couldn’t survive without or you believe could improve how you operate your business today. Depending on what your business does, this could be as simple as a new coffee machine right through to heavy construction equipment.

Many of these items run into the thousands of pounds, and for smaller businesses trying to grow, big up-front costs just aren’t possible. If your business can’t afford such big-ticket purchases then this is where equipment finance can help. Even if you’re a more established business who can afford the initial outlay you may ask if you want to buy such an expensive piece of equipment outright anyway. After all, you wouldn’t want to pay rent on your commercial property several years in advance, so why would you do it for business equipment? Rather than using a large chunk of your cash at hand, you may prefer to spread the cost over time and invest your cash into revenue-driving activities.

What is Equipment Finance?

Equipment financing helps you usually finance somewhere between 80% – 100% of the value of either new or used equipment that you need for your business to operate. Equipment loans are typically one of the faster ways to purchase most types of equipment – whether heavy machinery, company vehicles, or IT hardware.

Equipment Financing Pro’s and Con’s

Unlike an unsecured loan, how much you can borrow through a business equipment loan isn’t just dependent on your company performance. The amount you can borrow will also depend on the type of equipment your business buys. The value of that equipment – whether it is new or used, the age and the quality of the equipment will all influence the loan amount you can receive – after all, it’s the equipment that ultimately serves as collateral to secure the loan.

The value of the equipment you seek dictates the amount and terms of your equipment financing, as the equipment provides security for the lender. If you can’t afford to pay back your business equipment loan, the lender can simply seize the piece of equipment and liquidize it for cash to recoup their losses.

Equipment loan terms usually start from 12 months and can last for as long as the expected life of the equipment. Small business equipment loans usually have fixed interest rates – somewhere between 8% – 30% with fixed-term lengths, requiring you to make the same payment each month.

Equipment Loans vs Equipment Lease Financing

Equipment loans and equipment leasing differ mostly by the ownership structure for the equipment. An equipment lease allows you to rent business equipment from a vendor in return for a monthly payment. During the lease term, you don’t own the equipment. Equipment finance is a collateralized loan that finances you to purchase a piece of equipment. Once you’ve repaid the loan according to the loan terms, you fully own your equipment.

So, with equipment leasing, you don’t actually own the equipment outright. Instead, a lender buys the piece of equipment from a supplier and rents it to your business for a monthly payment. At the end of the lease, you can choose to return the equipment, renew your lease, or purchase the equipment.

Generally, if you know you want the equipment long-term, small business equipment financing is a better option.  Once you’ve repaid your loan according to its terms, you’ll fully own your equipment. Equipment loans are also easier to access than unsecured business loans, particularly for startups.

Here at business loan companies, the lenders we review provide small business equipment loans, not equipment leasing.

Why do SMEs Seek Small Business Equipment Financing?

The nature of the online lenders we review is that they are happy to finance small businesses that meet their criteria for generally any business purpose. Whether that is working capital, tax debt, purchasing equipment, or any other business requirement. The same applies to equipment purchases too, providing you meet the lending criteria then all of these forms of financing are readily available for business owners:

• Heavy Equipment Financing
• Farm Equipment Loans
• Key Equipment Finance
• Restaurant Equipment Financing
• Construction Equipment Financing
• Used Equipment Financing
• Medical Equipment Loans

We’ll take a look at three common uses of equipment financing in more detail.

Construction Equipment Financing

Construction equipment financing, also known as heavy equipment financing, is one of the most popular reasons for seeking an equipment loan. It’s most common for construction and manufacturing companies who require capital goods to produce their end product or service.

This equipment can easily be in the tens or hundreds of thousands of dollars and may not be just one piece of equipment you require. Providing you know the equipment will last and prove a valuable asset to your business then it is the quintessential example of when small business equipment financing works. A piece of equipment that is otherwise too expensive to buy outright but can be used as an asset to secure a small business equipment loan.

Given the high cost, repayments are likely to be over many years. This can help to reduce the impact on your companies working capital but the greater the duration of your equipment loan, the greater the interest will be as well.

The high costs involved may also mean you are seeking an equipment loan for more than some equipment finance lenders are willing to provide. However, with such a variety of equipment finance lenders and specialist equipment financing companies available today, you should find one that meets your needs. You should also have the choice as to whether you want to pay a deposit, meaning you won’t need to borrow the full cost of the asset if you can afford otherwise.

Medical Equipment Loans

Medical equipment loans are required if you need high-quality equipment in excellent condition. Like construction business loans, each piece of medical equipment is likely to represent a significant outlay. Equipment finance can help medical practices keep up to date with new technologies without taking a significant chunk out of their working capital.

It may be that you’re seeking equipment finance for a specific piece of equipment, or perhaps it may prove worthwhile establishing a line of credit that will allow you to purchase and upgrade equipment over time, as and when you need it.

On top of the significant outlay on key pieces of medical equipment that your practice requires, you may also require fit-out financing or an unsecured business loan for renovating reception areas and purchasing office items. Then you will want to consider the various leasing options for IT infrastructure or perhaps purchasing this outright.

Restaurant Equipment Financing

Restaurant owners usually have a lot of equipment and fit-out costs to cover. Establishing both a commercial kitchen and dining area is a significant investment, and equipment finance can help restaurant owners spread the cost, freeing up working capital for the day-to-day running costs of a restaurant.

It is generally regarded that commercial restaurant and cooking equipment has a medium-term lifespan. Some restaurant owners prefer not to have the burden of equipment on them, this can be particularly beneficial if something goes wrong, so they prefer to lease kitchen equipment. That being said, there are plenty of routes you can go down to ultimately own kitchen equipment by the end of your loan agreement if you have a long-term project.

You can apply for either an equipment loan or an unsecured loan for the fit-out costs of your dining area. Something to watch out for is that most equipment loans come with a fixed repayment schedule so if, like many restaurants, your revenue varies from month to month it may prove beneficial to see if you could tie your repayment schedule to your anticipated income. Paying more in months you anticipate being busier.

Point-of-sale software, booking systems, and IT infrastructure can either be purchased outright with an equipment loan or managed via an operating lease.

Equipment Loan Calculator

A common concern for business owners before taking business equipment loans is understanding the repayment schedule. As always you mustn’t borrow more than you can afford to repay, so feel free to use our very own equipment loan calculator to see how your repayment schedule could look:

Equipment Financing – Final Considerations and Caution

As long as the lender believes your business can service the debt, a lender will allow you to borrow any amount that is required to purchase the equipment you desire as the lender will generally use the equipment as security. Borrowing via small business equipment loans is generally at a lower interest rate than unsecured small business loans and proves easier to access for new businesses.

Small business equipment financing can also be pretty easy and quick to access as well – in some cases you may be able to receive funding in just a matter of days.

However, at this point though you must consider if the finances make sense for your business. Do the benefits of having the equipment now outweigh the costs of taking an equipment loan? Or would you be better to build your cash reserves until you can buy the equipment you need outright?

Business owners will also want to consider how important it is to own the equipment outright themselves and if there is any chance that the equipment could quickly become obsolete or outdated. If your business changes how it does things regularly or you’re in an industry that is constantly being disrupted with new technologies then this could be particularly relevant.

It’s important to remember that if you miss out on equipment loan payments, the percentage of interest accrued over the lifetime of the equipment loan will increase. You will also be unable to change or sell the equipment until you have fully repaid your equipment loan. Essentially, there is no right or wrong decision but if you’re buying the right equipment and doing everything else correctly as a business then the benefits of the right piece of equipment should bring in more than the repayment costs on an equipment financing loan.