Where Can I Get An Equipment Loan?

Many businesses need equipment to perform their work and deliver products to customers. But if your small business doesn’t have the cash to drop on new equipment, an equipment loan can provide the funding you need. Essentially, an equipment loan is a term loan that uses the equipment as collateral.

The good news is that you can find equipment loans from every type of lender, from traditional banks to SBA or online lenders.

Getting an equipment loan from a traditional lender

Traditional lenders like banks and credit unions offer low starting interest rates and long repayment terms if you get an equipment loan through them. While typically their eligibility requirements are strict for business loans, traditional lenders are more likely to approve equipment financing.

The reason is that equipment loans are secured by the equipment as collateral. The lender can seize the equipment to repay the loan if needed, making this type of loan less risky for the lender.

Traditional lenders may also offer SBA loans, like the 504 loan, which is designed specifically for buying commercial equipment. The SBA limits interest rates and offers long repayment terms of up to 10 years for 504 loans.

Traditional lenders that offer equipment loans

Pros and cons

Most traditional banks offer equipment loans with competitive interest rates, but you need to be an established business to qualify.

Pros

• Low interest rates. Traditional banks tend to keep interest rates lower than online lenders, especially since this is a secured loan.
• In-person support. Traditional lenders have local branches where you can meet with a banker face-to-face.
• May offer SBA 504 loans. Many traditional banks are SBA-approved or preferred lenders. You can find an approved lender through the SBA’s lender match tool.

Cons

• May not accept bad credit. These lenders typically have strict eligibility guidelines, like a credit score of 670 or higher, so they don’t take on extra risk.
• Typically requires two years in business. Most banks don’t approve businesses with under two years in business, excluding startups from getting funding.
• Potentially long applications. Traditional lenders tend to have multiple-page applications and require a long list of documents. And going in person or sending in paperwork can drag out the process.

Online lenders

Online lenders tend to relax credit score requirements for an equipment loan to a 500 to 600 personal credit score, compared to traditional lenders that require strong credit. Online lenders may also specialize in equipment loans and accept startup businesses. However, expect loan amounts to be lower than traditional banks  – such as $500,000 – and if you don’t have good credit, the interest rates quoted may be high.

Some online lenders specialize in financing specific types of equipment like semi-truck financing. These lenders may offer specialized loan options catering to their industry. For example, CAG Truck Capital offers engine overhaul financing so that owner-operators can finance work done to their truck’s engine. These lenders often accept startups and bad credit borrowers, making them an accessible option.

Online lenders that offer equipment loans

Pros and cons

Online lenders are more welcoming to business owners with bad credit, but they may offer a higher interest rate to offset your credit risk.

Pros

• Welcomes risky borrowers. Some online lenders accept business owners with a credit score of 500 to 600. They’re also more welcoming of startups with less than two years in business.
• Fast applications and funding. Online lenders often streamline their applications, providing funds quickly within 24 to 48 hours.
• More likely to offer no down payment. Many fintechs offer 100 percent financing, while banks like borrowers who can make a down payment of 10 percent to 20 percent.

Cons

• Potentially higher rates. While starting rates are similar to banks, online equipment loans can quickly rise to a 40.00 percent APR or more.
• Not likely to offer SBA 504 loans. Most fintech lenders aren’t SBA approved and don’t offer SBA 504 loans.

Equipment manufacturers

In some cases, you may be able to get an equipment loan through an equipment manufacturer. If you finance through a manufacturer, you get the benefit of buying and financing commercial equipment in the same place.

Manufacturers may partner with a lender to offer financing. If so, you may want to compare the loan with other equipment loans to make sure you’re getting the best deal.

Pros and cons

Pros

• Fast funding. You might be able to receive funding as soon as the same or the next business day after the loan is approved.
• Often works with bad credit. Manufacturers may accept a variety of credit levels, including bad credit.
• Offers convenience. You get the convenience of buying and financing your equipment all in one place.

Cons

• Only offers equipment loans. Specialized lenders typically offer only equipment loans. If you need another type of loan, you’ll need to look into getting that loan with a different lender or bank.
• May not be a recognizable brand. When working with a manufacturer, you may have never heard of the lender, making it harder to trust the lender with this financial relationship.

Equipment loan requirements

Equipment loans are one of the easiest types of business loans to qualify for. According to the 2024 Small Business Credit Survey by the Federal Reserve Banks, auto and equipment loans have an 85 percent approval rate, the highest rate of any other business loan.

However, equipment loan requirements do vary by the type of lender you choose. Typical requirements include:

• Time in business: One to two years
• Minimum credit score: 550 to 650
• Annual revenue: $100,000 to $250,000
• Down payment: 10 percent to 20 percent

Alternatives to equipment loans

If you don’t qualify for an equipment loan or need more flexibility to use the funding for different purposes, try one of these options for buying equipment:

• Term loan. Like equipment loans, term loans pay out a lump sum and have fixed repayments. But this loan may have longer repayment terms and may not require you to secure it with collateral.
• Business line of credit. A line of credit lets you borrow funds up to a predetermined credit limit anytime once you’re approved. You only pay interest on the amount withdrawn. Then, as you repay the loan, the credit limit replenishes so that you can borrow again as needed.
• Equipment leasing. A lease can help you get equipment without as much upfront cost, such as no down payment. It can allow you to get newer equipment than if you were to finance, and it often comes with maintenance included. Some leases give you the chance to buy the equipment at the end of the term.
• SBA 7(a) loan. The SBA 7(a) loan is the most common SBA loan available. You can use the funds for general purposes like buying equipment. The SBA guarantees up to 75 percent of the loan, compared to just 40 percent for 504 loans.
• Merchant cash advance. A merchant cash advance grants funds based on future debit or credit card sales. MCAs tend to accept bad credit businesses and allow you to use the funds for any expense. However, beware: the daily or weekly repayment schedule and high fees can make it challenging to repay the loan.

Bottom line

As a secured business loan, equipment loans offer low interest rates and lenient eligibility requirements no matter where you get the loan. But traditional lenders tend to offer the lowest starting rates for creditworthy businesses.

Online equipment loan lenders are more accepting of startups and owners with bad credit and can provide funds within a few days. Your choice of lender really comes down to which benefits your business is looking for with a lender.

Frequently asked questions

• What credit score is needed for an equipment loan?

  Many lenders have lenient credit score requirements of 600 for equipment loans, while some drop even lower to the 500s. Lenders can accept higher-risk borrowers because the loan is secured by the equipment. If you get a loan with a traditional bank, you may need a credit score of at least 670.

• What is a good interest rate for an equipment loan?

  Equipment loans often start around 6 percent, which is a good interest rate for creditworthy business owners. But average rates for bad credit can get up to 40 percent.

• Where can you find equipment loans?

  Most banks offer business equipment loans with competitive rates, while online or direct lenders may offer equipment loans with no down payment and funding in as little as 24 hours. Repayment terms stay in the same range for these types of lenders.