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What is equipment financing?

Equipment financing is the use of a loan or lease to purchase or borrow hard assets for your business. This type of financing might be used to purchase or borrow any physical asset, such as a restaurant oven or a company car. There is an enormous number of variations on equipment financing that cater to specific types of businesses and equipment. The most important thing to understand about equipment financing, broadly speaking, is that it’s for financing a physical asset. Why does this matter? Unlike with, say, a working capital loan, the asset you’re purchasing serves as a kind of collateral. If you default on your loan or lease, the lender can repossess the asset. Because of this, equipment financing tends to be a more cost-effective and lower-risk way to acquire equipment than other forms of financing.

Who qualifies for equipment financing?

Any business that utilizes physical equipment can probably make use of equipment financing. That includes such things as vehicles, computers, and machinery utilized by your business. Qualifying for equipment financing is another matter. Equipment loans tend to be a relatively conservative type of financial product. In most cases, you’ll need to have good credit (600+), and you should be able to demonstrate the ability to service your equipment loan or lease. You’ll also need to select the right equipment financer; that is to say, you’ll need to pick one that finances your type of equipment.

Why use equipment financing?

Business owners commonly get equipment financing in these situations:

  • You need expensive equipment but can’t afford to (or don’t want to) purchase that equipment upfront
  • You need to replace your equipment frequently because it has a short lifespan, or you always need the latest in technology
  • You need some combination of the above

    Is equipment financing right for your business?

    If your business is in a situation similar to any of the ones above, the answer might be yes. However, there are a couple of different ways you can get financing.

    Benefits of equipment financing:

  • It can increase your working capital
  • It helps you keep up-to-date with the best equipment
  • There are tax benefits for equipment financing
  • It can free up other lines of credit
  • It has an easy application process

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