12/07/2022 | Press release | Archived content
Running a business? We know you're busy. So when that espresso machine goes out and you can't make drinks for customers, or when the truck breaks down and you can't make deliveries, you need a solution fast. This is where equipment loans can be a huge help.
Business Equipment loans are commercial loans that assist small business owners in purchasing, repairing, or replacing equipment. As term loans, they provide funds in a lump sum so you can quickly purchase what you need. The loan is repaid with interest through monthly payments over time. They can be used to buy a wide range of products such as commercial ovens, office furniture, coffee brewers, company vehicles, air units, or construction equipment. You could even use it to purchase real estate through some Small Business Administration (SBA) programs, according to
ValuePenguin¹.
When you get an equipment loan, the financed equipment will act as collateral to secure it. Financing typically covers 80% - 100% of the cost of the equipment, depending on factors such as the age and type of the equipment, how long it will last, and the lender. This means you could be required to make a downpayment.
You should also consider "soft costs", which are additional costs for things like taxes, delivery, or installation. Some lenders will allow you to roll these soft costs into your loan. This could look like a lender giving you a loan for 80% of the price of the equipment and an additional 20% for soft costs. Some may finance it all, according to Nerdwallet², leading to a loan that's 120% of the equipment cost (100% for the equipment plus 20% for soft costs).
But what if you can't get 100% financing and you don't have the money for a downpayment? There is another option you could consider.
An equipment lease allows you to get equipment or pieces of equipment without putting any money down. In this case, you don't own the equipment, instead you lease it from a financial institution. Depending on the situation, you may have the option to buy the equipment when the lease is up, and you may be charged for any damage to the equipment according to Kabbage³. The bank or credit union may cover the cost of maintenance, making future headaches less stressful.
Since equipment loans use the equipment itself as collateral, they tend to be less risky for the lender, making qualifying quicker and easier than you might think. While all financial institutions have different requirements, there are a few things that most lenders will be looking for.
A Good Credit Score - Lenders want to avoid risk. A score over 670 shows you are a low risk and gives you a good chance of being approved, while 620 is a standard minimum. If your score is below 620, there may still be some options out there, but they could come with a higher interest rate. To increase your chances, check your credit score and work on it before applying.
Experience in the industry - If your business is just getting started, be sure to highlight any experience or knowledge you have in the industry. Having at least 2 to 5 years of experience in your field as a successful business can significantly help your cause when applying. Some lenders may require you to be in business a certain number of years to even be considered.
Strong Business Plan - Helping your lender catch the vision for your business by showing how it functions and where it's headed allows them to better understand what the money is going toward. Not having a strong business plan can severely impact your chances of getting approved for an equipment loan. Avoid this by preparing a business plan before you go to apply. Need help? Check out our article on how to prepare a business plan.
The application process for an equipment loan is pretty simple - these are the steps you need to take.
You might know how to get an equipment loan, but If you're wondering whether or not your situation calls for getting one, we're here to help you decide. Here are a few reasons businesses apply for equipment loans:
In any of these situations, you always want to analyze if the return outweighs the investment. To do this, calculate the monthly payments for the loan, and then see how much you plan to benefit financially from the equipment. If, for instance, you plan on paying $500 a month for a loan, and the equipment you're buying/replacing brings in a profit of $1,000 a month, then this is a worthy investment. However, if you were going to pay $1,500 a month for that same equipment, you may need to look into other options.
At Southern Bank, we have a number of loan options that work for business owners at any stage. Our approval process on equipment loans is quick and turnaround time is usually less than a day. We also offer competitive rates, with even better rates for long term customers. All this means you could qualify for a loan that fits your budget, on a timeline that meets your needs.
Get the process started by reaching out to one of our local lenders. Once approved, you'll receive funding to start the exciting task of purchasing new equipment for your growing business. Need anything else? We'll be here to help.