According to the Equipment Leasing and Financing Association (ELFA), around 78% of American businesses purchases equipment through loans, leases, and lines of credit.
Businesses often rely on financing equipment to avoiding disruptions in operations, so a business equipment loan is not used to earn more profit but to maintain business continuity. Often, a business equipment loan is obtained when the company’s old equipment demands repair or replacement. They need to fix this issue quickly as business disruption can greatly impact business revenue or caused its decline. Similarly, businesses leverage such loans to improve return on investment, enhance client satisfaction, and scale upwards.
Below are details about how an equipment loan works, how you can apply for it, how it helps to grow your business, and available equipment financing resources.
How Do Equipment Loans Work?
Banks lend 80% to 100% to businesses to purchase quality equipment, and the average term loan is three to seven years. Equipment loans are based on the life of the equipment and rely on its quality. Because there are several variables, the bank will help you with which repayment term is suitable for you and your equipment needs.
How Can You Apply for an Equipment Loan?
You can apply or obtain lender approval for the equipment loan based on the following basic requirements:
- Loan amount – equal to 80% of the equipment’s price or $61,500
- Loan to value rate – up to 100%
- Fixed interest amount – 4.00% to 12.75%
- Funding duration – a minimum of two business days
- Credit score –at least 650 or higher
- Your work experience in business – a minimum of 12 months
- Annual revenue – $50,000 or more
American Express reports that banks often offer flexible financing terms and approve loans without asking for down payments or good credit scores.
Instead, the lender can claim ownership of your equipment if you fail to repay your debt. Remember, lenders will decide the debt payment terms and interest costs of the equipment loan. These terms may vary according to your personal and business credit scores, the length of time you have been in business, the annual return on investment, and the requested loan amount.
Resources for Business Equipment Funds:
Frequently, equipment sellers and contractors offer private in-house equipment funding. However, business owners tend to look for a separate lender that lends them money or equipment. Business or commercial lenders that offer equipment funds have procedures and terms as listed below.
The Small Business Administration (SBA):
The SBA 7 (a) or CDC/504 loan has the best rate for business equipment funding if you have an excellent credit score for costly expenses. You can apply for it if you claim a number of funds that is around $5.5 million. For smaller expenses, the SBA microloan program lends a $50,000 equipment loan. Qualifying applicants will get suitable interest rates and time frames for debt repayment, such as six years. If you want to reach SBA-approved lenders for business equipment funds, visit SBA’s Lender Match Page.
Banks:
Banks offer conventional loans for business equipment or funds. But it is important to remember that there is a lengthy approval procedure with stringent financial requirements and terms.
Online Equipment Fund Providers:
Online business equipment providers are best for borrowers who are looking for quick funding with minimal terms. The alternative options for such equipment financers are:
- Balboa Capital
- Crest Capital
- Express Finance By currency
- eLease
- Street Shares
Benefits of Getting Business Equipment Loan:
Applying for a business equipment loan may be the most beneficial decision for you. Business owners who are approved for an equipment loan receive borrowed amount or equipment as fast as they want, which allows them to maintain operations with little disruption and leverage fast business growth and profit. A business equipment loan often has flexible terms and conditions. Likewise, when you repay your loan on time, it ultimately boosts your business credit score, which will make future loan applications easier to approve.
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