Equipment Financing

Equipment financing is a loan or lease that allows businesses to purchase equipment without paying the full cost upfront. You can use it to buy various equipment, including vehicles, office furniture, and machinery.

The equipment is typically used as a type of collateral for the loan, meaning you pledge to give up the equipment if you can no longer repay the loan. Heavy equipment collateral loans are strategic options for companies looking to secure high-valued equipment, often representing a steep financial investment.

Equipment financing is a standard process similar to many common loan applications. There are several steps to note:

• Choose your equipment so you know specifically what you want to finance and how much it will cost.
• Find a lender and apply. Research and compare different financing options available from banks, credit unions, online lenders, and more.
• Get approved and review terms. Once you’re deemed eligible, carefully examine the financing agreement, including interest rates, repayment terms, and any fees.
• Sign the contract and purchase your equipment. The lender will usually pay the equipment vendor directly when you take possession of the equipment.
• Make regular payments until you pay the equipment off.

The most important step in the equipment funding process is finding a lender who can meet your financing needs. If you work with National Business Capital, you can browse capital options from us and our network of lending partners. Plus, you gain access to dedicated support from our team of expert Business Financing Advisors. That way, you partner with the right lender to help you achieve your growth goals.

💡Plan ahead: Check out our five straightforward tips for getting the best heavy equipment financing rates.

You have two primary options to finance new equipment for your business: leasing and loans. Both provide a way to obtain equipment without a massive upfront investment, but they differ significantly in terms of ownership, payment structure, and tax implications.

• Equipment Lease: This is similar to renting. You make regular payments to use the equipment for a specific period but don’t own it at the end of a lease term.
• Equipment Loan: This is a traditional loan, so you borrow money to finance the equipment purchase outright and make regular payments with interest until you repay the loan.

Business equipment leasing might be a better option for companies that need to upgrade equipment frequently or avoid the risks associated with ownership. An equipment finance loan helps you achieve ownership without the steep cost out of the gate and is an especially good option if you plan to own the equipment for a long time or much of its usable life.

The length of time you can finance equipment varies depending on several factors, including the lender, the type of equipment, and your financial situation. Generally, financing terms range from one to 10 years, with some lenders offering terms as long as 15 years for specific types of equipment.

Repayment terms are often tied to equipment’s useful life, which is how long the asset is expected to last before it’s trashed, sold, or otherwise retired. The repayment term on your business equipment loan is important because it represents how long you’ll be in debt as well as the overall cost of financing. 

Longer-term loans feature lower monthly payments but can be more expensive over the loan’s lifetime. Shorter-term loans have higher monthly payments, but you’ll be in debt for less time and save on interest fees overall. 

Still, many businesses will select a repayment term based on the monthly payment amount they can afford. Consult with one of our Business Financing Advisors to help you understand which would work best for your scenario.

💡Think long-term: Some industries have specific loan term requirements outside of traditional offerings. According to Matt Presta, Financial Advisor at National Business Capital: “For example, medical practices might look to add an expensive piece of equipment for their growth and want longer terms to pay it off. They should look to find lending partners with specific terms favoring their needs.”

Equipment financing offers many advantages for businesses that need new or updated machinery, vehicles, or technology without depleting their operating capital. Let’s explore some key benefits.

Preserves Cash Flow 

Instead of making a large upfront purchase, you can spread the cost of the equipment over time through manageable monthly payments. This frees up your working capital for other essential business expenses, such as inventory, marketing, and payroll, allowing for greater financial flexibility and growth opportunities.

Speeds Up Equipment Acquisition

Financing can significantly expedite the process of acquiring new equipment. Rather than saving up for a large purchase, you can obtain the equipment immediately and generate revenue sooner. This can be particularly beneficial in fast-paced industries where having the latest technology provides a competitive edge.

Creates Tax Advantages

You may be eligible for certain tax benefits depending on the type of equipment financing you choose and your local tax laws. Lease payments are often fully deductible as operating expenses, while loans may allow you to depreciate the equipment over time, reducing your tax burden. Under Section 179 of the US tax code, for example, you’re allowed to write off purchases as business expenses up to $1,220,000 for the 2024 tax year. To grasp all of the tax benefits of purchasing equipment, consult with a tax professional.

Simplifies Equipment Lifecycle Management

Equipment financing can simplify the process of managing your equipment lifecycle. Leasing, in particular, allows you to easily upgrade to newer models at the end of the lease term, ensuring you always have access to the latest technology without the hassle of selling or disposing of old equipment.

Equipment financing is a crucial growth step for most businesses that regularly use expensive equipment. Don’t forego expansion or settle for less-than-stellar equipment because of its cost. Opt to finance the purchase over time to reduce your financial burden and risk.

Find a lender that meets your specific needs after speaking with a Financial Advisor at National Business Capital – and apply now to start the process.