When Can Small Businesses Use Equipment Financing

Buying equipment as a small business owner can be a stressful situation. A lot of equipment can be very expensive and require a serious investment. However, you need the equipment to operate and grow your business. Fortunately, there may be some financing opportunities that can help you get what you need without investing all your available capital.

What Can You Use Equipment Financing For?

This is one of the most common types of financing. The good news is that lenders are very flexible about how funds can be used. In fact, nearly any business type can get funding to help pay for equipment needs.

Certain sources, such as SBA loans, have limitations on what you can use the money for. In the case of 504 and 7a loans, the equipment usually needs to have a service life of 10 years or more. Nonetheless, a business could buy computers and software or an excavator with the same type of loan. In short, you can use the financing for any relevant business equipment purchase.

How Much Can You Fund?

Different lenders will offer their own loan-to-value ratios. Traditionally, you would expect to pay 10 to 20% as a down payment. However, many lenders today are willing to offer full financing.

The equipment is typically the collateral for the loan. However, if you don’t make a down payment, you may need to offer additional collateral to secure the loan. This could be inventory, accounts receivable, real estate or other assets.

Upgrading Equipment

Getting upgrades is perhaps the most common cause for businesses seeking financing for equipment purchases. This can be a great way to spread the cost of the equipment out over time. Consider opting for leasing. That may enable you to avoid the constant issue of equipment obsolescence.

It is often helpful to seek a loan from an alternative lender. They may be more willing to provide funding to small businesses as well as offer leasing options. Banks have greatly reduced their lending to smaller companies over the past 15 years. However, there are still plenty of lenders willing to work with businesses like yours.

Get Started

If you need to get equipment for your small business, learn more about your financing options. Equipment financing could help you spread out the cost of the purchase. That means you need to use less of your current cash and not deplete your current lines of credit. Get started exploring this option for the next time your team needs an upgrade.