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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jun 3, 2021

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Summary

  • Business equipment financing allows you to make monthly payments on expensive equipment
  • Under the right lender, you can secure an eight percent interest rate
  • Before getting a business equipment loan, use an equipment loans calculator to estimate your monthly rates

Do you have an auto repair shop that needs new equipment? Or maybe you have an office that needs several desktop computers.

You can get business loans called business equipment financing to help pay for expensive equipment. What is business equipment financing and how does it work?

Our guide explains everything you need to know about business equipment financing and how it works.

Continue reading to learn how business equipment financing can work for your business. Enter your ZIP code in the free online quote tool to compare multiple companies near you.

What is business equipment financing?

Business equipment financing is a loan for essential equipment at your business. Most businesses get equipment financing to cover significant purchases that have expensive costs.

Business Equipment Financing Pros & Cons
Business Equipment Financing ProsBusiness Equipment Financing Cons
Business equipment financing has a low-interest rateYou may have to sell or dispose of outdated equipment you financed
You own the equipment once the loan has been paid. You can even lease your business equipment through your previous lenderSome initial down payments are expensive
The interest you've paid on your business equipment financing loan can be used as a deductible
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Usually, business equipment financing loans match the price of the equipment. Also, the loan should come with a term limit, such as ten years. Paying on the principal of the loan can shorten the term.

Business equipment loans are usually used for business auto loans and semi-trucks. However, food trucks can use business equipment financing for refrigerating units and other essential equipment.

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How does business equipment financing work?

Equipment financing provides a loan specifically for businesses that need costly but essential equipment to make a business more efficient.

Finance companies, banks, and other lenders may require collateral as security for the loan. If you fail to make timely payments, the lender can seize business assets or personal assets that you’ve put up as collateral.

Some loans won’t cover the entire cost of business equipment. That’s because your business line of credit or overall financial profile hasn’t accumulated enough credibility.

How do I get business equipment financing with bad credit?

Getting business equipment financing with bad credit is challenging. Lenders may give you the minimum loan amount at a very high interest rate.

Interest rates for business equipment financing are between eight and 30%. With bad credit, you could have an interest rate close to 30%.

Before you request a business equipment financing loan, use an equipment loans calculator to get an estimate of how much you’ll pay per month.

Where can you get business equipment financing?

Business equipment financing is usually available through banks. However, there are other financial companies you can choose from.

Here’s a list of equipment financing companies.

  • Balboa Capital
  • CIT Bank
  • Crest Capital
  • Currency
  • National Funding
  • US Business Funding

These six companies are listed as the best equipment finance companies currently operating. They don’t have prepayment penalties, but most of them have an origination fee or documentation fee.

National Funding doesn’t have a listed interest rate, but business owners with a FICO score of 575 or higher may qualify for a loan up to $150,000.

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How can I apply for business equipment financing?

To apply for a business equipment financing loan, you’ll need:

  • Credit Score
  • Equipment Cost Estimate
  • Up to Three Months of Business Financial Statements
  • The Time You’ve Been in the Business
  • Personal Information
  • Business Tax Return

Each loan company carries different requirements, but you should have the items listed above.

Are personal loans and business equipment leasing options better than business equipment financing?

Personal loans are often used for business, but it’s better to use a business line of credit or a business loan like business equipment financing. Personal loans typically have higher interest rates.

If you don’t want to deal with finance companies, you can lease equipment through business equipment leasing. Instead of making monthly payments to own the equipment, you make payments to use the equipment.

With business equipment leasing, you can return the equipment once it becomes outdated and upgrade to an updated version.

Business Equipment Financing: What’s the bottom line?

Use business equipment financing to your advantage to avoid large upfront costs that you may not be able to afford all at once.

Business equipment financing has lower interest rates than personal loans, and it’s a great way to improve your business line of credit.

Now that you know more about business equipment financing, you’re ready to shop around. Enter your ZIP code in the free comparison tool below to compare multiple companies.