What is Equipment Financing? The Pros, Cons, and How it Works

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What is Equipment Financing? The Pros, Cons, and How it Works

Equipment financing is an essential part of doing business. Your business probably requires specialized equipment and machinery which allows employees to do their jobs with the utmost efficiency. This goes for all sorts of different businesses, which include medical practices, construction contractors, laboratories, etc. Figuring out how equipment financing works and which options to choose is crucial.

Equipment financing basics

If you’re a small or medium business owner, you’ll probably be familiar with the complexity of obtaining and maintaining equipment that is necessary for your business. Depending on the line of work you’re in, the equipment you need could be insanely expensive, and it could far outrank your capacity to purchase with the initial investment for the business. This is where equipment financing comes in.

While businesses usually find equipment to be too expensive to purchase outright, there are systems in place that can allow them to utilize equipment until they have the purchasing power to pay it off. This is usually done with the help of equipment loans. These loans help businesses get a head start with the expensive equipment that is essential for their services. The lender is counting on the idea that the business will flourish and eventually pay back that loan with some interest. It’s a mutually beneficial deal that allows business owners to get a foothold in more expensive lines of work.

Rates and terms tend to vary

Not every equipment financing loan is treated equally. It really depends on the business that’s requesting it. For more advanced equipment and machinery, you can expect long-term payment plans and variable interest rates. The lender needs to determine the viability of the business in order to figure out whether the loan is worth their trouble.

However, there isn’t too much variety when it comes to equipment financing loans. There are some standard metrics that you can expect from most lenders. Fixed interest rates tend to go from four per cent to around twelve per cent maximum. Funding speed is pretty standard across the board. Most lenders will provide you with the necessary funds within two to three business days, which makes them ideal for making quick deals.

Other aspects, like repayment, have much more variation. When it comes to repayment terms, you could be looking at a plan that ranges from a few months to up to a decade. Longer plans might not necessarily be ideal, as they provide ample time for interest to build up. Always aim for a deal that would be most appropriate long-term for your business.

Qualifying for a loan

In order to get adequate financing for equipment, your business first needs to qualify for an equipment business loan. Different lenders will have different requirements for an equipment financing loan, which might stop certain businesses from getting the financing they need.

One of the most important factors that lenders look at is the personal credit score of the business owner. Before seeking out financing options, it’s crucial that you check your credit rating online. Many equipment finance solutions also require a detailed business plan which describes your business and its future growth proposals. Prospective lenders will also require documents which give a comprehensive summary of your business so far if it has previously been active. This means providing a balance sheet and cash flow statements. The assistance of a qualified consultant and accountant might come in handy for the loan application process.

Choosing the right financing solution

There’s no shortage of equipment financing options out there, but this doesn’t mean that businesses have a lot of viable options. It’s crucial that you find a lender that meets all of your financing requirements. At the same time, the lender has to be well familiarized with your business model and how well it can turn a profit.

Traditional lenders, such as banks, have stricter requirements for their loans, but they provide solid rates and terms for the financing. On the other hand, smaller institutions might be more flexible when it comes to their requirements, while other aspects may vary. New additions to the market include online lenders, which often have the best of both worlds, as long as they find your business model to be viable.

The option you decide to choose can depend on a variety of factors. The size, cash flow, and qualifications of your business are crucial, but there are many other things that lenders will take into account. As long as you find yourself an appropriate deal with good terms, it’s going to be beneficial to your business.


Equipment financing is a very useful tool that can help up-and-coming and well-established businesses expand and increase the efficiency of their work. This is why it’s so important that you find yourself an adequate financing solution which covers all of your business’s equipment needs while also having attractive rates. The good news is that there is a wealth of options out there, and businesses need only search for the most ideal agreement that matches their needs. It’s a difficult search, but it’s well worth the trouble in the end.