Equipment Loans for Small Business: Pros & Cons

Looking to purchase that piece of equipment that can move your small business forward? An equipment loan can help. We’ve put together a list of pros and cons when it comes to this type of funding so you can make a more informed decision.

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What’s an equipment loan?

Business equipment loans are used for acquiring larger equipment that might be too pricey to expense outright. Whether it’s new computers for the office, heavy machinery, or anything in between, the tool you’re planning to purchase will usually act as collateral for its own loan.



An equipment loan can provide you with the additional funding you need to make a large, important purchase instead of using your available cash flow. Plus, you won’t have to wait until you have the funds on hand to take the plunge.

Consistent payments

Taking out an equipment loan means spreading out the cost of the purchase over a longer time period, which has a lower impact on your business cash flow. Smaller increments over several years is easier on your account than one large payment due at once.

Strong collateral

One of the biggest advantages of most equipment loans is that the item you’re planning to purchase can act as the collateral. That means less risk for you: in the case of default, only the equipment itself will be impacted.



Limited to equipment only

As you’ve probably guessed, equipment loans can only be used for equipment purchases. Unlike other financing options, these loans must be totally allocated for one specific purpose. This means less flexibility for you, the borrower, if you have any additional costs you need to cover.

Higher rates

For competitive terms on an equipment, you’ll usually need to have excellent credit and a strong financial history. Otherwise, interest rates can rise as high as 30%. You might want to consider other options at that point.

Owning the equipment

Remember that an equipment loan is not like a lease. Once the loan amount is paid off, you’ll own the equipment you purchased. If you’re planning on keeping it for the long term, this arrangement would probably make sense. Otherwise, if the equipment becomes outdated or depreciates quickly, owning can be a costly choice.

An Affordable Alternative

Did you know that SBA loans can be used toward equipment purchases and a variety of other uses such as marketing, hiring, and debt refinance? With low rates, long terms, and low monthly payments, you can boost your business growth not only through an equipment but by increasing available working capital.

If you’re looking for an affordable, secure option, SBA loans can be a great fit for your business. SmartBiz Loans makes it easy to apply through our streamlined, online application. Then, we match you with the lending partner who’s most likely to fund your loan.

Get started today by pre-qualifying in under 5 minutes!