Can Equipment Loans be a good choice for small businesses?

October 16 15:42 2019

An equipment loan is financing tool that allows small business owners to acquire the equipment and machinery they need to grow their companies when they do not have enough cash. Such loans sometimes require a down payment of between 10% and 30%, with the loan provider financing the rest. In other instances, lenders finance the entire cost of the equipment, usually with a higher cost of financing for the borrower.

Businesses across all industries use equipment loans to finance the purchase of the equipment they need. Some of the categories of companies that can use equipment loans include Construction companies, Farming businesses, Auto body shops, Restaurants, Manufacturers, and Shipping companies. Other categories of businesses that can access equipment loans are Healthcare providers, Breweries, IT agencies, creative agencies.

Factors to consider when choosing an equipment loan

One of the major challenges faced by small business owners in particular is getting the best equipment loans. It is worth noting that there are several factors to consider when choosing an equipment loan. Some of such factors are the lender’s specialty, size of the loan, requirements of the lender, interest rates, speed of funding, and loan terms.

Pros of Equipment Loans

  • Relatively easy to obtain

  • Usually fast funding

  • Drive competitive advantage

  • Help generate more revenue

  • Equipment is an asset

  • Tax incentives

Cons of Equipment Loans

  • May require significant down payment

  • More expensive over the long term

  • Can require credit inquiries, or damage borrower’s credit score

  • May be penalties for repaying the loan early

  • There can be issues with repairs

  • Equipment can become outdated quickly

Alternative Funding Options

There are several financing options available to small businesses that need funds to acquire their equipment. These options include Traditional term loans, Loans from non-bank lenders, Business lines of credit, and Loans from the SBA.

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