Are you interested in financing equipment?
Are you a business owner envisioning the best way to invest in newer equipment? This is achievable with little to no down payment and low rates. While other businesses may require more money and endless financial documents, we can help you make this vision a reality. Together, we can take your business to the next level by using Equipment Financing & Equipment Leasing. Business owners now have many loan options when financing equipment, so your first stop should not just be the local bank. Business equipment loans allow for small monthly payments that are similar to equipment leasing. Once the balance is paid off, a business owner retains full ownership of their new equipment.
All businesses face the recurring dilemma of equipment cost. Whether it involves upgrading equipment to perform better or fixing broken ones, maintaining equipment costs money. Maintenance or even having to purchase an unfixable piece of equipment can put significant strain on the business’s cash flow.
Approval rates for business equipment financing with online lenders are among the highest of all funding products. While certain banks like Wells Fargo and Bank of America offer similar products, we find that the approval rates tend to hover at about 80% from both types of lenders. Best of all, business owners are able to receive their funds within a matter of days, with little or no down payment. The approved businesses also enjoy superior rates (starting at 5%) where some cases may qualify for a tax deduction.
Equipment Financing FAQ:
What is equipment financing and who is it for?
Business equipment financing is similar to term business loans, but it is specifically for the use of purchasing equipment. Equipment financing is advantageous because it allows business owners to make purchases with little to no down payment, furnishes simple repayment terms, and provides competitive rates. Equipment loan alternative lenders, in general, allow the borrower to use the purchased asset as collateral, affording them protection; thus, the rate is lower and could increase the overall loan amount.
How much can I borrow with business equipment loans?
Typically, a small business can get up to 100% of the loan amount needed to purchase equipment and for equipment leasing. In some cases, a down payment and minimum credit score may be required for equipment financing. Since the purchased asset is used as collateral, equipment financing provides savings because the interest rate is lower than other options like unsecured business credit lines, invoice factoring, merchant cash advances, or different types of small business loans.
Who qualifies for Equipment Financing?
Approved small business owners generally met the following criteria:
How does equipment financing work?
Equipment financing is similar to term business loans with respect to payment options. There are fixed periodic payments (including principle and interest) on a monthly basis until the principle balance is paid in full. After payment is complete, you will be the sole and complete owner of the equipment.
Up to $5 million can be borrowed per piece of equipment. Interest rates start as low as 5%. To qualify for equipment financing, a 600+ minimum credit score is generally required. In order for the loan finance company to determine the cost of the equipment, they are likely to request information including, but not limited to, the purchase price, age of equipment, seller, and manufacturer. The aforementioned information is needed to protect the company’s investment in the case of a default.
A quick example of how this works is by examining a pastry chef looking to increase their production of baked goods. To increase their productivity by the desired amount, they have determined that an industrial oven costing $75,000 is needed. A five-year term with as low as 5% interest can be negotiated by the pastry chef and the loan financing company by applying for an equipment loan. In this case, the industrial oven is being used as collateral, therefore, the pastry chef saves capital by obtaining a lower rate and potentially a higher loan amount than they would have had they used other funding methods. After making regular payments for five years, the balance is paid off, and the pastry chef has achieved both goals of increasing production and owning the equipment. Equipment financing is the most ideal way to acquire high-priced equipment for your business operations.
What are the advantages of equipment financing?
For businesses to get larger loan offers with low interest and longer terms, they generally need collateral. Equipment loan finance companies aim to ensure their risk is minimal in the case of a default. By using the equipment as collateral, the lender is able to grant favorable terms to the borrower. Even less than perfect credit scores or an annual revenue that isn’t in the seven-figure range are eligible for this funding product. Alternative lenders might even overlook the age of a new business with collateral in the picture. With equipment loans, the purchased asset acts as collateral.
Financing equipment also allows a business to own an asset, as opposed to leasing it. Though equipment leasing has its advantages, it is likely to cost more money than purchasing in the long run. Keep in mind that the primary purpose of this method is to reduce the upfront payment price. Instead, the business owner is able to make monthly payments, which helps cash flow. Interest payments are usually tax-deductible and although lease payments may qualify for a tax deduction, why not own it instead?
What are the disadvantages of equipment financing?
Business owners tend to be concerned with the equipment becoming outdated over time as annual revenues can fluctuate. Industries are evolving at an accelerated pace with depreciation as a concern. It would mean that by the time equipment loans are paid off, the asset might be of significantly lesser value. Also, if the equipment is owned, the business owner is responsible for all costs related to fixes, maintenance, and any applicable upgrades. On the other hand, with leasing, the equipment leasing company handles the maintenance and repairs. Because the equipment is not being paid for in full, it costs more going down this road due to interest payments. Equipment loans have a few drawbacks that are overshadowed by many benefits.
- Quickly access funds
- Easier approval process
- Less than perfect credit score accepted
- The asset is used as collateral
- Borrow up to 100% of market value
- Depreciation may prevent from deducting full costs on tax returns each year
- Possible prepayment penalty
How do you apply for equipment financing?
Step 1: Determine if purchasing is the best choice
The first step is to decide whether leasing or purchasing will benefit your business in the long run. Before applying, make sure you ask yourself these questions:
- What is the likelihood that the equipment becomes outdated soon?
- Will your business need this equipment a few years from now?
- Is this purchase worth the interest payments?
- Do you intend to use the equipment for your business long term?
These questions will help us determine the right terms for the equipment loan or whether you should even think about purchasing the equipment at all. Be sure to keep in mind the current market value and final invoice price.
Step 2: Gather your documents
Applicants must provide the following information and documents:
- Driver’s license
- Voided check
- Bank statements from the four three months
- Invoice for equipment
- Financial statements
Step 3: Complete an application
Upon completing our one-page online application, our underwriting team works reviews your information to give approvals best suited for your business.
Step 4: Connect and discuss
Once your application is submitted and reviewed, a trained and skilled representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This will ensure that there are no surprises or hidden fees during repayment.
Step 5: Receive approval
After selecting the option that works best for your needs, underwriting submits your file for credit approval. Upon approval, your equipment financing loan gets set up and the cash gets sent directly to you (the merchant). Our team will then assist in setting you up for automatic payments, or you can arrange to pay by check/electronic payment.
How do I decide to purchase or lease equipment?
The key deciding factor to consider the time frame in which the equipment will be needed for. For usage of at least 36 months, most equipment financing options will likely cost less than an equipment lease. On the other hand, if usage is under 36 months, we recommend lease terms. Keep in mind that a lease agreement is still considered debt and could potentially impact the ability to access commercial mortgages, a business line of credit, or trade credit from vendors.
Can I get financing on used equipment?
Some lenders offer buy-back programs in which they purchase the equipment at the end of the loan term. Since the equipment serves as collateral, lenders might become the new owner of a piece of equipment following the borrower’s default. In these cases, financing used equipment becomes a possibility.
What type of equipment can I finance?
At Direct Biz Funding, we are open to financing various types of equipment in every growing industry. Businesses such as the following can receive funding for equipment to help them conquer their industries:
Why do companies choose to finance equipment?
Businesses prefer financing equipment because of financial sensibility. Financing equipment also allows a company to use its own money for other purposes, like advertising, acquisition, and etc.
Some reasons to consider financing instead of leasing:
- You do not have the amount of cash needed
- You do not want to use up your other forms of credit
- You are ready to grow in a booming industry
- Your most valuable piece of machinery broke down and is unrepairable
- Your equipment needs to get replaced frequently
Advances in technology have made your current equipment obsolete and inefficient.
Is equipment financing tax deductible?
Interest payments can qualify for a tax deduction, however; it is not guaranteed that every case is tax deductible. We recommend speaking with a tax professional regarding potential tax breaks.
Do some manufacturers offer financing?
Some heavy equipment manufacturers offer to finance their products, but it is to be noted that these programs often come with high equipment financing rates. In these cases, the equipment is not used as collateral, thus the manufacturer might assign a higher rate to offset the risk.
Financing programs only allow for the purchasing of the equipment. As any business leaders know, all major purchases naturally create additional expenses. Equipment financing allows for negotiation with lenders about borrowing enough money to purchase the equipment and cover extra costs.
Can I get equipment financing with less than perfect credit?
This product is available to borrowers with credit scores on the lower end that are less than ideal. Since the equipment is being used as collateral, credit scores will only have a minor impact on overall interest and terms. The lowest possible rates are naturally given to borrowers with higher credit scores.
Is it better to finance new or used equipment?
This will depend on the business type, use of equipment and case by case needs. In most cases, new equipment is preferred. While not the cheaper option, it almost guarantees a longer lifespan of the equipment. Choosing new products could keep businesses aligned with industry demands and increase productivity. Used equipment can be a good choice if the borrower defaults, the lender (or bank) seizes the equipment and needs to unload it to recoup their principle. This a common way to buy used at a discounted cost.
Can you get an equipment loan for a credit card payment processing app or POS software system?
Yes, equipment financing loan options can be used for a credit card payment processing app or a credit card POS software system. Online lenders may require a 600+ credit score.