Many business owners need new equipment, but they may be unsure of how to acquire financing to purchase it. There are so many different loans that it’s easy to get confused about which type is the best for specific purposes. How does equipment financing work and what are the benefits?

Equipment Financing: The Basics

As the name suggests, this type of financing revolves around purchasing equipment. It can adapt to small, medium, and large equipment needs, including heavy machinery with a significant price tag.

Other loans can also provide funds for purchasing equipment, such as SBA loans, but they’re not the same thing. A dedicated equipment loan stands apart because it uses the new piece of equipment as collateral. That makes this option a type of asset-based lending.

The Process for Getting an Equipment Loan

You don’t need to utilize any personal or business collateral for this type of loan. That means your company’s assets are safe and sound. The application process is simple, with requirements for basic business information. As long as you have OK credit, you shouldn’t run into any problems. Some programs even provide financing for companies with bad credit.

Do you need to make a down payment on the equipment? That varies depending on the terms of your loan. Equipment financing is very flexible, which means lenders generally customize it to each business’s finances.

Some companies prefer to make a larger down payment so they can have lower monthly payments. Newer businesses that don’t have a lot of working capital choose loans with 0% down so they can save funds for monthly operating expenses.

The Benefits of Equipment Loans

One of the main benefits of this type of financing is how adaptable it is for small businesses. Getting approved is much easier than with a traditional business acquisition loan, both in terms of credit rating and revenue. Many companies can qualify even if they’ve had issues with debt in the past. That doesn’t happen with conventional loans, but equipment loans are more flexible.

Another advantage is the freedom to choose the equipment you want, not something the bank thinks you should get. As a working professional, you know better than anyone what brand, model and specs are necessary to excel in your industry.

Equipment financing also has low-interest rates compared to other types of alternative funding. Generally, the rates are comparable to SBA financing. It doesn’t take long to get approved, and you can use the new equipment right away to start generating profits.