Best Of
Banks and online lenders offer equipment loans to help finance costly equipment purchases for businesses.
Equipment financing is a type of small-business loan designed specifically for the purchase of machinery and equipment essential to running your business. You can use an equipment loan to purchase anything from office furniture and medical equipment to farm machinery or commercial ovens.
Keep reading to learn more about equipment financing and compare your business equipment loan options.
Our picks for
Equipment loans for items under $50,000
9.00 - 99.00%
600
Pros
Cons
Qualifications:
6.99 - 24.99%
650
Pros
Cons
Qualifications:
Our pick for
Equipment loans for items $50,000 and over
12.18 - 36.00%
660
Pros
Cons
Qualifications:
Lender | Best For | Est. APR | Min. Credit Score | Next Steps |
---|---|---|---|---|
OnDeck - Online term loan | Best for Equipment loans for items under $50,000 | 9.00 - 99.00% | 600 | See Your Loan Options
with Fundera by Nerdwallet |
Credibility Capital - Online term loan | Best for Equipment loans for items under $50,000 | 6.99 - 24.99% | 650 | See Your Loan Options
with Fundera by Nerdwallet |
Funding Circle - Online term loan | Best for Equipment loans for items $50,000 and over | 12.18 - 36.00% | 660 | See Your Loan Options
with Fundera by Nerdwallet |
With equipment financing, the loan amount you qualify for depends on the value of the equipment you are purchasing. The equipment also serves as collateral for the loan, so the lender can seize it if you fail to repay the loan.
Traditional banks typically offer the most favorable interest rates and terms, but they have strict credit standards. Online small-business lenders are another equipment financing option, especially if you need to purchase equipment quickly or if your personal and business finances aren’t in excellent shape.
The size of the loan should match the price of the equipment you’re purchasing, while the loan term should match how long you expect to use the new equipment. If you’re buying commercial ovens that you expect to use for 10 years years, get a loan with a 10-year term. A shorter term may have you scrambling to make payments, and a longer term means you’ll be paying for the equipment after you stop using it.
Some lenders may require an equipment loan to finance heavy-duty vehicles, whereas others offer business auto loans or semi truck financing to cover such purchases. Compare options to find the best fit for your business.
Equipment loan interest rates are typically between 8% and 30%. Where your rate will fall in that range depends on your credit score, business revenue and time in business, as well as the equipment you’re financing.
Established businesses with excellent financials could secure a rate below 8%, for example. While startups and business owners with bad credit (a FICO score between 300 and 629) will likely have a higher interest rate.
The main benefit of financing large equipment purchases is that it leaves working capital free for day-to-day operations. But there are other things to consider, such as the length of the loan and whether you’ll need a down payment. Here are some pros and cons to consider:
PROS
CONS
Many vendors offer leasing as a financing alternative.
Equipment leasing can help reduce costs and maximize an investment. For instance, a piece of equipment becomes less valuable and productive as it gets older, so leasing it for a limited time may be a smart move.
Some financing companies also offer the option of buying the equipment at current market value.
Leasing generally is more costly than buying if you end up using the equipment for a long time. According to the Equipment Leasing and Finance Association, leasing is “likely the preferable option” for equipment you plan to use for 36 months or less. If you’ll use it for longer, it makes more sense to buy.
To recap our selections...