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Equipment Financing: Best Business Loan Options

Banks and online lenders offer equipment financing to help you purchase costly equipment and machinery for your business.
Last updated on January 21, 2022
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Equipment financing is a type of small-business loan designed specifically for the purchase of machinery and equipment essential to running your business. You can use an equipment loan to purchase anything from office furniture and medical equipment to farm machinery or commercial ovens.
Keep reading to learn more about equipment financing and compare your business equipment loan options.

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Summary of Equipment Financing: Best Business Loan Options

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LenderBest ForMax Loan AmountMin. Credit ScoreNext Steps

Funding Circle - Online term loan

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Best for Online equipment loans for businesses with strong credit$500,000660
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Credibility Capital - Online term loan

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Best for Online equipment loans for businesses with strong credit$500,000650
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Triton Capital - Equipment financing

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Best for Equipment financing for bad credit$250,000600
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OnDeck - Online term loan

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Best for Equipment financing for bad credit$250,000600
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TAB Bank - Term loan

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Best for Bank equipment financing$200,000650
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SBA 7(a) loan

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Best for SBA equipment loans$5,000,000650
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SBA CDC/504 loans

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Best for SBA equipment loans$5,000,000680
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Online equipment loans for businesses with strong credit

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Funding Circle - Online term loan

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Max Loan Amount

$500,000

Min. Credit Score

660

Funding Circle is an option for established businesses that are financing an expansion or refinancing debt.

Pros

  • Cash can be available within 3 business days.
  • Competitive rates among online lenders.
  • No minimum revenue requirement.

Cons

  • Requires business lien and personal guarantee.
  • Not available in Nevada.
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Qualifications:

  • Minimum credit score: 660.
  • Minimum time in business: 2 years.
  • Minimum annual revenue: None.
  • No bankruptices in the past 7 years.
May fund quickly
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Credibility Capital - Online term loan

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Max Loan Amount

$500,000

Min. Credit Score

650

Credibility Capital offers low-cost business loans that work best for small-business owners with strong credit.

Pros

  • Competitive rates among online lenders.
  • No prepayment penalty.
  • Extra monthly payments can save interest cost.

Cons

  • Requires high minimum credit score and revenue.
  • Requires business lien and may require personal guarantee.
  • Not available in Nevada, North Dakota, South Dakota or Vermont.
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Qualifications:

  • Minimum credit score: 650.
  • Minimum time in business: 2 years.
  • Minimum annual revenue: $200,000.
  • No bankruptcies in the past 5 years.

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Equipment financing for bad credit

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Triton Capital - Equipment financing

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Max Loan Amount

$250,000

Min. Credit Score

600

Triton Capital offers fast equipment loans up to $250,000 for businesses in a range of industries.

Pros

  • Can fund within one to two business days.
  • No prepayment penalty.
  • Flexible repayment options: monthly, quarterly, annually or semi-annually.

Cons

  • Typically requires a personal guarantee and UCC lien.
  • Requires high minimum annual revenue.
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Qualifications:

  • Minimum credit score: 600.
  • Minimum time in business: Two years, but startups may be eligible (with higher costs).
  • Minimum annual revenue: $250,000.
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OnDeck - Online term loan

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Max Loan Amount

$250,000

Min. Credit Score

600

OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand.

Pros

  • Cash can be available within the same business day.
  • Requires low minimum credit score.
  • Less paperwork than most lenders.

Cons

  • Fixed-fee structure means early repayment will not save interest.
  • Requires frequent (daily or weekly) repayments.
  • Requires business lien and personal guarantee.
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Qualifications:

  • Minimum credit score: 600.
  • Minimum time in business: 1 year.
  • Minimum annual revenue: $100,000.
  • No bankruptcies in the past 2 years.
May fund quickly

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Bank equipment financing

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TAB Bank - Term loan

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Max Loan Amount

$200,000

Min. Credit Score

650

TAB Bank offers competitive interest rates for business owners with strong credit — and can sometimes fund faster than an SBA loan.

Pros

  • No prepayment penalty.
  • Terms range from 12 to 60 months.
  • Bank loan with online application process.

Cons

  • Requires high minimum credit score.
  • Origination fee and documentation fee charged on all loans.
  • Requires business lien and personal guarantee.
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Qualifications:

  • Minimum credit score: 650.
  • Minimum time in business: Two years.
  • Minimum annual revenue: $100,000.

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SBA equipment loans

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SBA 7(a) loan

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Max Loan Amount

$5,000,000

Min. Credit Score

650

7(a) program participants include specialized lenders like Live Oak Bank and big-name traditional banks like Wells Fargo.

Pros

  • Available as a term loan or line of credit.
  • Interest rates are capped.
  • Long repayment terms available.

Cons

  • Personal guarantee is required.
  • Collateral is typically required.
  • Longer processing times than online lenders.
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Qualifications:

  • Be a for-profit U.S. business.
  • Must first use alternative financial resources, including personal assets.
  • Financial qualifications determined by individual lender.
Lowest interest rate
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SBA CDC/504 loans

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Max Loan Amount

$5,000,000

Min. Credit Score

680

You cannot put an SBA CDC/504 loan toward working capital, existing debt or a rental real estate investment.

Pros

  • Low down payment required.
  • Repayment terms of up to 20 years.
  • Competitive interest rates.

Cons

  • Personal guarantee is required.
  • Collateral is required.
  • Longer processing times than online lenders.
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Qualifications:

  • Be a for-profit U.S. business.
  • Net worth of less than $15 million.
  • Average net income of less than $5 million for the two years prior to your application.
  • Financial qualifications determined by individual lender.

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How equipment financing works

Equipment financing is a type of asset-based financing, which means that the equipment itself serves as collateral on the loan. You can get an equipment loan equal to up to 100% of the value of the equipment you’re looking to purchase — depending on the lender and your business’s qualifications — which you then pay back over time, with interest.
Some small-business lenders may also pay for soft costs, such as delivery, installation, warranties, assembly and other one-time expenses required to get your equipment set up and running. Certain lenders will finance these costs on top of the full value of your equipment — offering, for example, 125% financing — 100% for the equipment, 25% for soft costs.
Other lenders, however, may finance only a percentage of the cost of the equipment, say 75%, and allot the remainder of the loan (25%) to your soft costs.
Because soft costs typically require a large investment upfront when you purchase your equipment — and don’t add value to the equipment long term — it can be helpful to find an experienced equipment lender that will finance some of these expenses. This way, you’re receiving the same interest rate to finance your soft costs as you are for the rest of your equipment loan — and you don’t have to use funds you have on hand or take out a separate loan to cover them.

Equipment financing rates and terms

Repayment terms and interest rates on equipment financing can vary depending on the lender, your business’s qualifications and how long the equipment you’re purchasing is projected to have value. Anecdotally, equipment financing interest rates range from 4% to 30% APR.
Generally, terms on equipment loans are based on the anticipated life of the equipment or machinery you’re purchasing. A shorter term may have you scrambling to make payments, and a longer term means you’ll be paying for the equipment after you stop using it.

Equipment financing vs. equipment leasing

Lenders may offer leasing as an alternative to equipment loans.
With equipment leasing, you rent the piece of equipment your business needs from a vendor, lender or specialized equipment financing company. At the conclusion of the lease, you must return the equipment, renew the lease or purchase the equipment.
Equipment leasing can help reduce costs and maximize an investment. For instance, a piece of equipment becomes less valuable and productive as it gets older, so leasing it for a limited time may be a smart move. Some financing companies also offer the option of buying the equipment at current market value.
Generally, leasing is more costly than financing if you plan to use the equipment for a long time. According to the Equipment Leasing and Finance Association, leasing is “likely the preferable option” for equipment you plan to use for 36 months or less. If you’ll use it for longer, it makes more sense to buy.

Pros and cons of equipment financing

Pros

  • Affordable. Equipment loans can provide competitive interest rates and long terms. SBA 7(a) loans, for example, typically offer terms up to 10 years for equipment purchases — and interest rates can start as low as 5.5%.
  • Equipment ownership. You’ll own the equipment outright. Once the loan is repaid, business owners who own equipment but need cash for other business purposes may opt to arrange a sale-and-leaseback agreement. This involves selling equipment to a lender in return for quick cash and then leasing it from that lender.
  • Self-collateralizing. You may not need to rely as heavily on personal credit, time in business or other forms of collateral to qualify. Startups and businesses with bad credit may be able to qualify for equipment financing.
  • Tax savings. At tax time, the interest you’ve paid is deductible, and you may also qualify for a depreciation tax benefit.

Cons

  • Outdated equipment. If the financed equipment becomes outdated, you’ll need to sell or dispose of it.
  • Down payment. An equipment loan may require a high initial down payment.

Where to get equipment financing

Online lenders

Online lenders can offer access to equipment financing with more flexible qualifications than traditional bank or SBA loans. Some online lenders will work with startups or businesses with bad credit.
Many online business lenders also offer streamlined application processes and fast financing — in some cases, funding loans within 24 hours.
Equipment loans from online lenders will typically be more expensive than bank or SBA loans, however, with shorter terms and higher interest rates.

Banks and credit unions

Although banks and credit unions generally offer equipment loans with the most favorable interest rates and terms, they also have strict eligibility requirements. To qualify for equipment financing from a bank, you’ll typically need strong personal credit (a FICO score of 700 or higher), several years in business and excellent financials.
If you can meet these requirements, however, getting an equipment loan from a bank or credit union will likely be your most affordable option. Plus, some of these institutions, like Wells Fargo, have business divisions specifically devoted to this type of financing — offering equipment solutions across a range of different industries.

SBA lenders

As an alternative to traditional bank financing, you might work with an SBA lender (typically a bank or credit union) to get an SBA loan. SBA loans have long terms — generally up to 10 years for equipment loans — and low interest rates. They also allow you to use the equipment you’re purchasing, as well as equipment you already own, as collateral.
To qualify for an SBA loan, you’ll generally need a good personal credit score, 690 or higher (although some SBA lenders may have lower score requirements), and strong business finances.
Get equipment financing for your industry:

Alternatives to equipment financing

For a look beyond equipment financing, check out NerdWallet’s list of best small-business loans. Our recommendations are based on the market scope and track record of lenders, the needs of business owners and an analysis of rates and other factors, so you can make the right financing decision.
Last updated on January 21, 2022

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Equipment Financing: Best Business Loan Options

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