Frequently Asked Questions about Equipment Loans
An equipment loan can be used to purchase a physical asset. It is given out to a business customer for their asset-buying purpose. There are a few things to bear in mind and watch in case you find yourself in need of this specific type of loan.
How Do Equipment Loans Work?
A bank or a financial services company issues this type of loan to customers in order to help them fund a portion of their equipment’s purchase cost. Such a loan is taken used by a small business that is looking to retain cash by spreading out such expenses over several months.
What about Collateral?
Put simply, collateral is something which a borrower pledges as security for a loan’s repayment; if they fail to pay back this loan, then their lender of choice will seize the collateral. The same principle works in equipment financing as well, but here the purchased equipment itself acts as the collateral. In other words, a borrower does not have to put up anything else in that stead. Like in any other form of secured funding, here, your lender would take the equipment back in case you fail to repay the equipment loan.
What Can You Buy with an Equipment Loan?
An equipment loan is used to make big purchases of assets that are likely to retain their value over time. These physical assets include the following.
- Large automobiles, such as semi trucks.
- Manufacturing equipment (for example, laser cutting machines, plate rolling machines, band saws, and so on).
- Big commercial printers.
- Farm equipment, such as tractors.
- Healthcare equipment (for instance, diagnostic machines, infusion pumps, X-ray machines, and so forth).
- Large construction vehicles as well as equipment (for example, mixer trucks, skid steers, cranes, etc).
- Computer servers.
- Restaurant equipment, such as ovens and ranges.
Other Facts to Know about Equipment Loans
A loan of this type requires less documentation in relation to several other forms of funding (such as an SBA loan, to name one), and you can usually get funded in under a week’s time. Interest rates on this usually fall between 6% and 9%. A small business owner who has a better credit score, as well as larger down payments, could get relatively lower interest rates. A borrower with a lower credit score as well as less cash to put down would see higher rates.
The usual term of repayment for a “non-SBA” loan of this sort is 1 to 5 years, but that can extend up to 10 years depending on the size of the equipment purchased, as well as its shelf life.