How to Apply for Business Equipment Financing

Whether you’re looking to maintain or grow your operations, you need the right equipment to serve your customers. Buying new business equipment is a necessary and expensive part of doing business. Business equipment loans are specialized to help finance these needs.

While you can take out a general business loan, most banks have business equipment financing designed for small business owners hoping to improve their operations.

Common business equipment upgrades

At some point, every business will need to upgrade their equipment. For example, construction contractors might need new tools, restaurants might need new ovens, and doctors and dentists might need newer medical technology.

And regardless of the industry, almost every business needs to upgrade common equipment like:

• Computers and software
• Printers, copiers and fax machines
• Industry-specific manufacturing equipment
• Vehicles

Determining your equipment costs

If you’ve already identified what equipment your small business needs in order to operate, the next step is to project the cost. This step requires some footwork on your part, including detailing the costs and quantities of your projected purchases.

To estimate the full costs, consider things such as:

• Price of each unit of equipment
• Costs of warranty
• Costs of supplies and software

Once you’ve done this analysis, you’re ready to apply for small business equipment financing.

Applying for an equipment loan

Securing a small business equipment loan can be similar to obtaining other types of loans. Your banking institution will most likely analyze your credit history and consider the length of time your business has been operating.

Beyond that, the lender could ask for financial statements and a business plan that integrates the desired equipment and its effect on productivity and revenue.

Benefits of equipment financing

When it comes to financing new equipment, you generally have three options available:

• A term loan
• A Business Line of Credit
• An equipment loan
  

While lines of credit and term loans are an option, equipment loan rates and terms may have greater flexibility. Some advantages of equipment financing may include:

• Purchased equipment could be used as the loan collateral
• May have a smaller impact on your business’s credit score
• Flexible repayment schedule
  

Some things to consider

In considering and applying for business equipment loans, you should keep a few things in mind.

Generally speaking, equipment loans are designed for larger purchases and customers with higher credit exposure. For smaller equipment purchases or customers with less credit history, a term loan can be a feasible option.

Also remember that most business equipment has a lifespan and will only be in use for a period of time before it needs to be replaced. You should account for functional details (such as upkeep costs) when determining the amount you borrow and the overall terms of your equipment loan. When applying for financing, be sure to consider:

• Equipment lifespan How long does the piece of equipment you’re looking to purchase usually last? The answer will impact how much you should borrow and what your repayment plan should look like.
• Loan repayment: If your equipment’s lifespan is five years, consider a repayment schedule of five years to avoid paying for outdated equipment.
• Installation costs: Don’t forget to budget for the cost of installing, setting up and integrating the new equipment into your business operations.

Running a business requires the right tools. If you’re interested in small business equipment financing, meet with your local business banker to determine what’s available for you.