Small Business Equipment Loans Explained

If you’re looking to boost your business growth by purchasing new or used equipment, an equipment loan may be the financing option for you.



What is a Business Equipment Loan?

A business equipment loan is specifically made for the purpose of buying equipment for your business. Equipment can be computers, machinery, cars, desks or other goods that help you run your business. Rather than paying the full cost of the supplies upfront, an equipment loan helps spread out the payments into smaller increments.

Leasing vs. Loan

The difference between an equipment lease and an equipment loan is whether you have to return the equipment after the loan is paid off. While a loan allows you to purchase and fully own the piece of equipment, a lease implies that you’re only using the product for a certain amount of time. After the lease expires, you can only keep the product if you pay a sum specified by the company.

Uses of Proceeds

Wondering how you can apply your equipment loan to your business? Some common uses of proceeds are to replace old equipment, to update older or outdated equipment, and to add to your existing equipment inventory. Usually, these loans are intended for large purchases that don’t depreciate too quickly. For example, you can purchase trucks, computer servers, machinery, or other large-scale equipment.

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Pros and Cons

Equipment loans are specifically made for the purchase of a certain item, so they can be quicker and easier to obtain than a traditional term loan, which can be more multi-purpose. Equipment loans can be taken out for amounts as large as 100% of the equipment’s value, and the term is determined by how long the equipment will be used. Because the piece of equipment serves as collateral for the loan, it can sometimes be easier to apply and get approved.

At the same time though, consider that taking out an equipment loan might cause more harm than good if interest costs more than the equipment is bringing in. At the end of the day, the trade-off between saving up to make a purchase and moving forward with a loan will depend on how much value the equipment brings your business. A SmartBiz customer used proceeds from a low-cost SBA loan to purchase new tree trimming equipment. He was able to hire more employees to use that equipment and expanded into a wider geographical area. Read his story here: The Tree Guy is Ready to Grow

Eligibility Requirements

Most business are eligible for an equipment loan, but the terms and rates will depend on the cost of the equipment, your business finances, and your credit score.

Some commonly requested documents are bank statements, an invoice for the equipment, and tax returns. You’ll also need to demonstrate that you have enough annual revenue to factor in the loan payments, and that the equipment will boost your business cash flow.

A down payment typically in the 10-20% range may also usually be required as another way to show that you’ll be able to pay back the loan amount. The riskier the loan is, the higher the down payment may go.


If you’re looking for an equipment loan, you can go directly to the dealer where you’re buying the equipment, to your local bank, to a company specializing in equipment loans, or to an SBA lender. For large purchases, an SBA loan’s low rates and long term can be the most affordable option.

At SmartBiz, we can help you obtain an SBA 7(a) loan through a streamlined, online application. Receive the funds for your equipment purchases as quickly as 7 days after completing the application. The more readily available your documentation is, the faster the process will go. Pre-qualify in under 5 minutes today!

See how SmartBiz helped a small business owner purchase additional equipment with a low-cost SBA loan: Grind Time Facilities – Getting SBA Loan Ready.