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How Do Equipment Loans Work?

The information provided below does not, and is not intended to, constitute legal advice. All information, content, and materials available on this page are for general informational purposes only.

 

Small businesses of every variety rely on equipment and machinery to manufacture products, deliver services, and generally facilitate business operations of every kind. However, these companies often lack the capital to simply purchase the equipment they need outright; instead, they use equipment loans – a common type of small business loan – to purchase what they need and ensure the smooth flow of products and services to customers and clients. But, how do equipment loans work, and what makes them different from other types of small business loans?

What is an Equipment Loan?

Whether you own a restaurant that needs a new stove or a factory that has to replace some outdated machinery, odds are your business will incur some sizable equipment-related costs that you might not be able to pay for all at once. That’s where equipment loans come in. This type of financing typically provides only as much funding as is required to purchase the needed equipment, and term lengths tend to reflect the expected life of the item.

For example, if you operate a delivery company that needs a new $35,000 truck or van that might last you 10 years, you can apply for a $35,000 equipment loan to complete the purchase, and the term length on that loan would generally be 10 years.

Benefits of Equipment Loans

By tailoring the details of a loan to match the equipment being purchased, the borrower can limit the amount of debt they incur and ensure that they are only paying for the equipment while it is in use. In many cases, the interest rate for an equipment loan is also lower than those found with other types of financing, offering yet another financial incentive for borrowers looking to upgrade or replace machinery.

Because the borrower will own the financed equipment upon repayment of the loan, they often have a number of options regarding what to do with the now-outdated machinery. This flexibility can be a big advantage; the business might sell the equipment to help finance another upgrade, or they could arrange a sale-and-leaseback agreement with their lender, which would involve selling the equipment back to the lender for some quick capital, then leasing it.

Types of Equipment Loans

The process of securing an equipment loan can be quite straightforward, but there are a few types of loans that might meet that need – some of which offer more benefits than others. The simplest option for an equipment loan would be a business term loan, the standard loan used by small businesses everywhere. This type of financing allows you to borrow a set amount, then pay it back through equal payments; a business term loan from Customers Bank comes with competitive interest rates, and clients with Customers Bank small business checking accounts can set up automatic payments on the loan.

Another option is to pursue a government guaranteed loan. As a Preferred Lender with the federal Small Business Administration (SBA), Customers Bank is proud to offer government-backed loans through three programs: SBA 7(a), SBA 504, and USDA B&I.  Depending on the program, a business can finance up to $5 million to cover a variety of expenses, including the purchase of new equipment.

To qualify for a government guaranteed equipment loan, your business must meet the following criteria:

  • The owner or owners must have invested time or money into the business.
  • The business must be properly registered and up to date on all tax submissions.
  • The company must be located in, and operate in, the U.S. or one of its territories.
  • The business cannot be eligible for conventional banking.

Additional requirements may apply to some programs, but your business could benefit from certain provisions as well. Companies owned by members of the U.S. military, for instance, may be given special consideration, as can those located in underserved communities or those involved in exporting goods and services. Whatever your industry or circumstances, the government guaranteed lenders at Customers Bank can sit down with you to discuss your unique business goals and identify the loan product that best meets those needs.

Equipment Loans Available from Customers Bank

The personalized nature of equipment loans necessitates flexibility on the part of lenders, which is why Customers Bank works with clients to identify and meet their specific needs. We operate based on a single point of contact system, allowing us to build personal relationships with clients while familiarizing ourselves with their business. Fill out our online form to connect with a Team Member and begin learning more about the financing solutions available for your business.

 

All products and services are subject to approval.