Equipment financing is a type of business loan that provides money to acquire new or used equipment, such as vehicles, machinery or technology. With equipment loans, you can often borrow up to 100% of the value of the equipment you want to buy. These loans are typically repaid over time at a fixed interest rate.
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For businesses that don't qualify for equipment financing, many other types of business loans can be used to purchase new or used equipment. These include SBA loans, lines of credit and working capital loans.
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Equipment financing is a way of getting business equipment, vehicles, software, technology, and more on a monthly payment plan instead of paying the full amount up front. Equipment financing refers to the use of a loan or a lease to make these equipment purchases. This type of financing allows you to get the equipment you need now while allowing you to pay for the asset over its lifetime.
The types of equipment you can finance are very broad and stretches across many different industries. Here are just some of the types of equipment that is considered financeable:
- construction or industrial equipment
- tools and machinery
- commercial kitchen appliances
- office furniture
- computer software for operations use
- appliances for office or business use
- vehicles used for transporting goods or employees
Yes! In general, you can finance used equipment, though not every lenders will allow it. If you default on an equipment loan, the lender will repossess the equipment financed. Newer assets are usually easier to liquidate and have less depreciation, so lenders do sometimes prefer financing new equipment. However, the larger and more valuable the assets, the more likely it is you can finance it used.
Absolutely. You can use many types of business funding ― including cash flow financing, short-term loans, invoice factoring, or even business credit cards ― to buy business equipment. Many businesses that cannot qualify for equipment loans use these other types of financing for equipment. Equipment loans are often advantageous if you can get them, since they may have lower interest rates and longer loan terms than other business loans.
Equipment leasing and equipment financing both allow you to access the equipment you need while paying for the asset over its lifetime. Equipment leasing lets you rent business equipment from your vendor for a monthly payment, and equipment loans allow you to fully own the asset once you have repaid your loan. The decision to lease or buy often depends on your cashflow needs, the length of time you'll use the equipment and the expected useful life of the property.
Most equipment financing deals are written for 24, 36, 48 or 60 months, depending on the type of equipment and its cost. Financing terms are usually shorter for low-cost equipment or equipment that will depreciate quickly.
In many cases, yes! If the equipment you finance qualifies for the Section 179 tax deduction, you may be able to deduct the monthly payments from your taxable income. Not all types of equipment are eligible, and there are of course IRS requirements to be followed. Please be sure to consult with your tax professional.
Equipment is a major expense for small businesses like yours. Purchasing things like machinery, vehicles, furniture and technology eats away at your working capital, or uses it up completely. When you finance equipment, you get what your business needs for predictable monthly payments. Your cash stays in the bank, and lines of credit remain with available cash, to help you grow your business.
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