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Best Equipment Financing Business Loans Ultimate Guide – Forbes Advisor

Best Equipment Financing Business Loans Ultimate Guide – Forbes Advisor
Written by Publishing Team

There are several types of equipment financing available, so it is essential to determine the business needs as well as eligibility requirements and costs for each lender. Evaluate these factors when choosing an equipment financing loan.

business needs

Before choosing an equipment financing loan, evaluate why the financing is necessary and whether the equipment will help the company improve efficiency or otherwise add to the bottom line. To do this, consider the following questions:

  • How important is equipment to a company’s ability to operate? Likewise, is the loan necessary to replace existing equipment or build on existing operations?
  • Will the equipment improve work efficiency or the quality of products and services? Will the equipment increase the company’s revenue or reduce the cost of operations?
  • Is equipment necessary to stay competitive in an industry or job market?
  • What is the cost of the equipment and what is the amount available for down payment?
  • How quickly business need funds?
  • How long will the equipment last or remain in use?

Ultimately, each company’s needs determine the type and size of equipment financing loan it needs. In some cases, equipment financing may not be the best option, or purchasing new equipment may not be a smart business decision.

Eligibility requirements

It is essential to consider eligibility requirements when comparing equipment financing so that you know if you qualify for a loan at a competitive rate. Eligibility requirements vary for different lenders, but equipment finance companies generally consider these eligibility factors:

  • industry. An applicant’s industry influences their odds of approval as well as the required down payment and available interest rates. This is because some industries pose more risks to lenders than others. For example, businesses in the construction industry are often considered riskier than those in the transportation industry.
  • Long time at work. Generally, an applicant must have worked for at least 12 months to qualify for equipment financing. Startups can still get equipment loans, but they must show sufficient cash flow and may need to make a larger down payment.
  • annual revenue. Companies with annual revenues of at least $50,000 have greater odds of being approved for equipment financing than applicants who are less financially stable. Lenders may require applicants to submit financial records and tax returns to demonstrate the company’s ability to repay the loan.
  • Credit scores. Applicants must have a personal credit score of at least 650 to qualify for equipment financing. However, borrowers with low credit — or a limited credit profile — may still qualify based on the company’s revenue.

Equipment financing cost

Equipment loan borrowers generally pay interest rates that range anywhere from 2% to 20%. However, equipment financing may also come with application fees and set-up fees that add to the overall cost. However, keep in mind that the application fee can be a red flag, as lenders should never charge a fee before an applicant is approved for financing. Business owners should expect to pay a set-up fee equal to about 3% of the total loan amount.

Finally, most equipment financing requires a down payment of about 15% or 20% of the purchase price, although this number varies and some lenders do not require a down payment at all. When choosing an equipment financing loan, compare providers based on the total cost of financing.

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