When running your small business, new or upgraded tools and machinery can help boost growth. If you’re ready to make an equipment purchase with outside funds, here’s how an equipment loan can help.
What is an Equipment Loan?
When you’re ready to buy large, tangible assets like trucks and machinery, you might need additional capital to finance the purchase. That’s where an equipment loan can help. The funds can apply to everything from medical tools to computers to restaurant ovens, depending on your industry. You’ll be able to increase productivity, maximize efficiency, and bring in more sales with up-to-date equipment.
Equipment loans work similarly to term loans, covering up to 100% of the total price and extending up to the useful life of the equipment. This number reveals how long the equipment is expected to benefit your business. The asset you’re planning to purchase may act as collateral for the loan, depending on your lender.
Leasing vs. Loan
Business owners can choose to take out a lease or a loan to finance their equipment purchases. Ultimately, the difference between these options is whether you can keep the product in the end. With a lease, you’re only paying for the time you use the equipment, after which you’ll be expected to return it or buy it for a discounted price. This arrangement will typically cover 100% of the price as well as some “soft costs” like taxes and fees. Obtaining a loan, on the other hand, will allow you to make a purchase and claim the asset as your own right away.
If you’re looking for more flexibility, leasing might be a good option to consider, requiring less commitment. However, the final amount you’ll owe may end up being larger than it would be with a loan.
Benefits of an Equipment Loan
By taking out an equipment loan, you’ll have access to capital that you can apply toward upgrading the tools you need to support your regular business operations. Then, you can list the item as an asset on your balance sheet and claim its depreciation when filing your business taxes.
To learn more about depreciation and how it plays a role when you’re filing your taxes, head to the SmartBiz Small Business Blog. You’ll find information about what the term means, how it compares to amortization, and why it matters.
How to Apply
Did you know that SBA loans, the “gold standard” in small business lending, can cover equipment purchases? This low-rate, long-term option gives you the flexibility of low monthly payments so you can run your business more efficiently and achieve your goals. Plus, there’s no prepayment penalty, which means that you can pay off the 10-year term at any time and save on total interest without any extra charges. If you’re looking to purchase equipment, that use of proceeds is covered under a working capital SBA loan through SmartBiz. We’ll help reduce the time it takes to get from start to funding through our streamlined, online application.
Read more about how we’ve helped one of our small business customers: Grind Time Facilities. Owner Jacob Almaraz began his SBA loan journey with SmartBiz Advisor and was able to secure the low-cost funds he needed to add more gym equipment and expand his training facility.
Grind Time Facilities is one of the many businesses we’ve helped. Check out our TrustPilot profile for more customer reviews!
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.