As one of the leading loan & finance based comparison portals

How Does Equipment Financing Work?

 

It takes money to make money—every small business owner knows that.

​

Sometimes you just need that new piece of equipment or machinery to seal the deal and start bringing in more revenue…

But how can you afford it?

​

Fortunately, this is a problem lots of the business owners we work with at Fundera face. And it’s one we can help you solve, too.

​

Here’s how equipment financing can get you on track to grow your business.

​

Why It’s Good to Use Equipment As Collateral

​

When your business needs a certain piece of equipment to get started or reach the next level, a small business equipment loan could be the right move.

​

You can use equipment financing to purchase almost any kind of business equipment, from computers to cars—and everything in between.

​

How much you can borrow depends on the type of equipment you’re buying and whether that equipment is new or used, since it actually serves as collateral to secure your loan.

​

If you’ve ever had a car loan, you’re already pretty familiar with the idea:

​

The price of that equipment dictates the amount and terms of your equipment financing, and you won’t need to put up any extra collateral.

​

And here’s a good thing to know:

​

Most equipment loans are made at fixed interest rates—usually between 8% and 30%—with set term lengths, so you can expect the same payment each and every month.

​

How Long Does Equipment Financing Last?

 

How long you can extend the term of your equipment loan depends on the sort of equipment you’re financing, as well as its anticipated lifetime.

​

Understandably, not too many lenders want to extend their equipment loan terms beyond when that piece of equipment is expected to be useful…

​

After all, the whole point is that they’re financing a tangible asset that will give your business value.

​

Equipment Financing vs. Equipment Leasing

 

Of course, there are other options besides equipment financing.

​

Some business owners choose to lease instead of getting an equipment loan, for example. There are definitely advantages with leasing, but with an equipment loan, you’ll own that equipment after your loan gets paid off.

​

On the other hand, with a lease, you only get to use that equipment while you’re paying.

​

So if you know you’ll need that equipment for awhile, equipment financing could be the right move. But if you’re looking for a temporary solution, a lease might make more sense.