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Quick Guide to Equipment Loans

Equipment loans can be a necessary financial aid for many new businesses. The phrase, you need money to make money translates to you need equipment to make money. As a small business owner, you can get financing for much of the equipment your business needs in order to function, including vehicles, tools, computers, and appliances.

According to the Equipment Leasing Association (ELA), U.S. businesses spend more than $1.2 trillion per year on equipment, capital goods or fixed business investments. Much of these goods are obtained with the help of equipment financing.

Need basic small business financing? Apply for a loan with one of our small business loan vendors.

In general, the companies involved in equipment financing and leasing are defined in three basic categories: banks, large finance companies and independent and broker companies. The type of firm you work with depends on the amount of money you’ll need.

  • Banks and bank-owned finance companies are generally selective in who receives financing from them. Along with being selective in what kind of equipment financing they will approve, they generally deal with loan transactions greater than $1,000,000.
  • Large finance companies with multiple branches deal in loan transactions greater than $100,000.
  • Independent and broker finance companies typically finance loans less than $100,000. These companies end up either partially or entirely selling off their finance agreements to other firms.

Benefits of Equipment Loans

Equipment loans enable your business to acquire expensive equipment by making the purchase in installments rather than paying entirely up front. This reduces the financial strain such a purchase can take on your business while still giving you access to the equipment you need.

  • You can acquire loans to pay for both new and used equipment that you need for your business. The amount of your loan and your interest rate will depend on the cost of the equipment, your business credit history, and your business’s current income and cash flow.
  • You can take a significant tax deduction for the purchase of any new (to you) equipment through Section 179 of the IRS tax code.
  • The 2013 Deduction Limit for new business equipment is $500,000; the Limit on Capital Purchases is $2,000,000. You can also take a Bonus Depreciation on the equipment of up to 50%.

Special Considerations

Acquiring any kind of financing takes effort and represents a significant financial responsibility. Before you decide to take out an equipment loan, make sure that you have weighed all the pros and cons of carrying a long-term loan. Your business needs to be able to make regular payments for the entire life of the loan or risk default and bankruptcy.

  • When you have decided that it is necessary for your business to acquire new equipment with financing, be sure to get quotes from several different companies in order to find the best terms and rates.
  • Before you choose a company to finance your loan, do your research. Look into the company’s history and see if it has a record of complaints against it. Ask for referrals from their clients who can vouch for the company’s service and quality. You want to find a company that has experience working with businesses that are similar to yours in size, profit margins, and industry so that they can give you expert guidance through the loan process.
  • Read all the terms and conditions of your loan before signing. You don’t want to get locked into a contract with hidden fees or other financial surprises.

Taking out an equipment loan can help you start up a new business or make your existing business grow. Once you’ve identified what equipment you need, get quotes from several different financing companies. Choose the company that best suits your needs in regards to loan terms, rates, and service.

If you’re interested in equipment loans, you may also want to check out business acquisition loans and commercial vehicle loans.