How Hard is It to Get a Equipment Loan?

When managing or starting a business, no matter how big or small, you will rely on the best equipment possible.

Not only will this make your job much smoother, but it will also increase business growth as your equipment creates better products for customers and clients.

There are two types of equipment loans: heavy equipment loans and equipment financing. You will need to know the difference between both loans to see which you are eligible for.

In this guide, we will talk you through the different types of equipment loans, whether you are eligible, how to apply, and whether it’s hard to get an equipment loan. Let’s get started!

What is an equipment loan?

An equipment loan is a type of loan designed to buy or replace business equipment. The money will cover the cost of purchases, replacements, repairs, and upgrades.

For most businesses, this loan is essential for the expensive equipment that they rely on.

Depending on the type of equipment loan, the loan can cover the costs of a range of equipment including cookware, restaurant appliances, computers, monitors, phones, tools, medical machinery, vehicles, and more.

It’s not easy to say how much money each business will get, because it all depends on the deal you negotiate with the lender.

In general, most loans mean you can finance up to 80% of the price of the machine, tool, or item. You will probably have to pay a 20% down payment, but once you have the piece of equipment, it’s immediately yours from day one.

Heavy Equipment Loans VS Equipment Financing

The two main types of equipment loans are heavy equipment loans and equipment financing

As the name suggests, heavy equipment loans are for businesses that require a loan for purchasing or replacing heavy equipment, which is why these loans mostly offer more money.

Heavy equipment loans will cover the costs for construction equipment such as bulldozers, cement mixers, fork lifts, cranes, and other large equipment that requires training and a license to operate.

Equipment financing loans will cover the costs for computers, furniture, printers, supplies in catering and restaurants, and sometimes even vehicles.

For example, a startup business or coffee shop would be eligible for an equipment financing loan to cover the costs for furniture and coffee machines respectively.

A food production company, construction company, or ice rinks would require the help from heavy equipment loans.

The whole point of both equipment loan types is to increase your future business growth and profitability.

Whilst you will have to pay these loans back, the repayment should be a small fraction of the money you gain from buying new equipment.

How to get an equipment loan?

As an equipment loan can be a huge moneymaker for a business, you will need to provide a sufficient business plan to prove that the loan will enhance business growth.

Unfortunately, as with all loans, lenders aren’t generally going to want to hand out loans without a plan. This is because lenders don’t care about how it will make your job easier, but rather how it will make the business better.

You will also need an excellent credit score. Startup business owners are some of the most common users of equipment loans, and because their business is starting from their personal funds, lenders must see evidence of a great credit score and history.

Whether you choose to get an equipment loan from your current or chosen bank or a specific lender is up to you.

If you are looking for financial aid quickly, you should consider online lenders such as Kabbage, which are designed to provide financial assistance to small and startup businesses faster than regular banks.

Banks are less willing to lend money to businesses with poor credit scores. These businesses will seem too risky for banks to lend them money that might not be repaid.

This can be a problem for small and startup businesses with bad credit, but they can always opt for a business loan - which will provide financial aid much faster than an equipment loan.

Banks and lenders are also less likely to provide loans to business owners who have outstanding debts and loans.

Lenders will also want to see proof of your experience as a business owner. These loans are slightly more personal than other loans, because the lender will want to see how qualified and experienced you are with dealing with equipment.

This is usually provided in the form of an updated resume. If you are looking to get a heavy equipment loan for a piece of equipment that requires a license to operate, this is essential.

Why you should get an equipment loan?

Equipment loans are one of the most popular forms of loans because lenders, banks, and business owners aren’t as likely to take a risk in comparison to other loans.

Other regular secured loans will require collateral to act as a security deposit, which is usually in the form of a financing payment or a property.

This can be risky, because if the loan falls through and something goes wrong, the lender or bank will repossess your collateral.

The equipment bought from equipment loans becomes the collateral, which means that if the business fails or if whatever goes wrong, the lender will repossess the equipment and sell it on.

This is much less risk-free to both the business owner(s) and the lenders.

Equipment loans are also approved fairly quickly compared to other loans. Online lenders offer the fastest amount of funding, which means you can apply for additional capital faster, too.

How hard is it to get an equipment loan?

Equipment loans are usually the fastest form of financial assistance for a business - and mostly the easiest, too. It’s not too hard to get an equipment loan, you just have to provide the necessary information to be eligible for one.

You will need to create a thorough and detailed business plan.

Lenders will see any business without a plan as a risk, so make sure to explain why you need the money, what equipment you will spend it on (whether it’s a new purchase, repairment, or upgrade), how it will benefit your business and employees, and how much business growth it will create.

The whole point of a loan is to boost your business, after all.

You should have an idea of what equipment you are looking to purchase or repair with the loan, as this will also give you an idea of what type of loan to apply for (heavy equipment loan or equipment financing).

As we have explained, equipment loans are one of the most risk-free loans available for businesses. This is because business owners aren’t obliged to give collateral, which could easily be repossessed if the owners default.

If the business goes under and the equipment hasn’t been paid off yet, the lenders will simply take the equipment as collateral and sell it on. This is what makes equipment loans so easy to attain and complete.

The great thing about equipment loans is that once the piece of equipment is in your hands (or figuratively, please don’t hold a bulldozer), it is officially yours.

Sure, it won’t be yours if the business goes under, but if you play your cards right and follow a suitable business plan alongside your lender, you are more likely to gain money than spend it on the loan.

When it comes to applying for an equipment loan, the requirements will vary depending on the lender.

In most cases, an eligible business will need between 6 months to two years in business, a credit score of over 620, at least $25,000 in annual revenue, and usually a down payment of 5%-20% for the equipment.

Whilst this might sound like a lot, this is surprisingly minimal compared to other loans.

Conclusion

To summarise, it’s not hard to get an equipment loan. Of course, all loans will have specific requirements for eligibility and application, but the nature of an equipment loan means that they are generally fairly easy to get.

This is because equipment loans don’t require collateral. Instead, the piece of equipment becomes collateral.

This means that the loan payment is generally fast and risk-free, and the equipment is officially yours as soon as it’s in your possession.

This is very different from other loans that require collateral, which can be more of a loss than a gain if the business falls through.