Compare Small Business Loans
Your business needs the right equipment to succeed, but buying it outright can be costly. Many banks, credit unions and online lenders offer equipment loans you could use to obtain computers, office furniture, machinery, vehicles and more. Though banks and credit unions typically offer the lowest rates and most generous terms, online lenders offer equipment financing quickly and, in general, with more lenient credit requirements. Equipment loan rates start around 3% with loan amounts up to $5.5 million.
Best equipment loans for small businesses
We’ve summarized some of the best equipment loans based on your particular needs.
|Better Business Funding||Lower credit scores||Starting at 6.75%||24 to 72 months|
|Currency||Lower credit scores||3% - 40%||24 to 72 months|
|SBA 7(a) and 504 loans||Good credit scores||Starting at 2.25 + prime rate; see below for 504 rates||Typically 10 years|
|SBA microloan||Small purchases||Maximum of 8.5% + intermediary’s costs||6 years|
|CIT||Small purchases||Starting at 5.49%||6 to 72 months|
|OnDeck||Getting funds quickly||Starting at 11.89%||Up to 18 months|
Best equipment loans for lower credit scores: Better Business Funding, Currency
Better Business Funding
Better Business Funding offers equipment financing up to $500,000. Notably, borrowers seeking less than $150,000 will have the advantage of a quick, one-page application process, with funding available in as little as two days. Loans from this online lender start at $5,000, with terms between 24 and 72 months and rates starting at 6.75%.
To be eligible for small business equipment loans through Better Business Funding, you must have been in business for at least two years but you do not need to meet a set revenue requirement. Better Business Funding requires a FICO score of at least 600, putting it among equipment financing companies well suited for borrowers with below-average credit.
Currency is an online lender specializing in small business equipment loans that are typically funded within two business days. At Currency, you may be able to borrow from $2,000 up to $500,000, with equipment loan rates between 3% and 40%. Its equipment financing can also be used for any associated soft costs, such as shipping and installation. Financing and lease agreements are available for 24 to 72 months.
You don't need a down payment to secure financing, though putting money down can result in lower monthly payments. You will, however, need:
- A minimum credit score of 650
- 3 to 5 years of business history
- 3 to 5 open credit lines
Another advantage of Currency is its partnerships with several merchants, including eBay. If you purchase equipment through eBay or any of Currency’s other partners, you can apply directly through the merchant site, further simplifying the financing process.
Best equipment loans for good credit: SBA 7(a) and SBA 504 loans
If you’re planning to make an equipment purchase for your business, SBA loans offer some of the best rates available for borrowers with strong credit. The U.S. Small Business Administration has several small business loan programs, though the 7(a) and 504 loans are among the most popular. These loans offer financing up to $5 million ($5.5 million for some 504 loans) and low interest rates — 7(a) loans, for example, have maximum interest rates between 5.5% and 11.25%, some of the most competitive interest rates you can find anywhere.
To qualify for these loans, you must:
- Own a for-profit business within the U.S.
- Have equity to invest
- Use personal assets or other alternatives first
- Have a good credit score — typically 680 or higher
- Meet any other requirements as specified by the lender (e.g., time in business, annual revenue, etc.)
Here’s a closer look at each program.
SBA 7(a) loans
The flagship program for the SBA, 7(a) loans can be used for a variety of business purposes, including equipment financing. Maximum interest rates range from 5.5% to 11.25% based on a prime rate of 3.25%. Terms usually stretch up to 10 years, though they can go up to 25 years if the equipment will be useful for that long.
SBA 504 loans
Also known as CDC loans, 504 loans are designed to help small business owners finance real estate or long-term equipment purchases. Because of their low interest rates, they are an attractive option for business owners making a serious investment in equipment. Borrowers should understand that they’ll be making two loan payments: One is paid to a certified development company (CDC) that is backed by the SBA, while the other is paid to a third-party lender like a bank or credit union. The maximum rate for the CDC portion of a 10-year equipment loan is 2.231%, as of November 2020. Banks set their own rates but were capped at 9.25% as of Dec. 28, 2020.
One downside to both 7(a) and 504 loans is the longer processing time. SBA loans can take several weeks or even months to process, so they aren’t ideal for business owners in a pinch — in that case, you may want to consider a 7(a) Express loan or a standard bank loan instead.
Best equipment loans for small purchases: SBA microloans, CIT
If you need to purchase equipment under $50,000, we’ve rounded up some of our top picks below for different types of borrowers.
Aside from the popular 7(a) and 504 loan programs, SBA microloans are a great choice for relatively inexpensive equipment purchases, particularly for new business owners seeking working capital or acquiring supplies or equipment. They are available through intermediary lenders up to $50,000, though the average loan amount is less, at $14,434. The maximum term is six years with maximum rates set at 8.5%, plus the intermediary’s costs
The online business lending arm of CIT Bank, CIT offers equipment financing between $5,000 and $500,000 ($1 million with additional documentation) with terms between six and 72 months. Rates start at 5.49% with the possibility of funding within one business day after approval. CIT requires a minimum personal credit score of 620 (or 680 if your company lacks a business credit history), so it might be best for established businesses or owners with strong credit.
One of CIT’s biggest perks is flexibility — it funds loans large and small with a wide range of terms. As an example, if a business needed to make a capital expenditure, such as acquiring or upgrading a plant or multiple pieces of equipment or technology, CIT funds projects between $3 million and $100 million.
Best equipment loan for getting funds quickly: OnDeck
Online lender OnDeck offers short-term loans from $5,000 to $250,000 with terms up to 18 months and rates starting at 11.89%. Lending decisions frequently happen within minutes, and funding can be available in as little as the same day — this makes OnDeck a good option when you need funds immediately. However, unlike the other lenders on this list, OnDeck also has a fast repayment schedule — automatic daily or weekly payments.
To be eligible for an OnDeck loan, you’ll need to have been in business for at least 1 year with an annual revenue of $100,000 or more. In addition, business owners must have a minimum credit score of 600, though its average customer has a FICO score of 650 or higher, three or more years in business and annual revenue of $300,000 or more.
What to consider when getting an equipment loan
Equipment loans work differently than standard business term loans. Because equipment loans are secured by the equipment you’re purchasing, they typically have more lenient requirements and require less documentation. There are frequently no down payment requirements, and you may be able to finance as much as 80% to 100% of the equipment. Decisions may come as quickly as the same day and some lenders may offer flexible payment schedules.
If you’re considering an equipment loan as a way to finance your next purchase, here are a few things to keep in mind.
One of the most important considerations when getting equipment financing is assessing whether you truly need the equipment. Are you replacing a crucial piece of machinery that has broken? Do you need to buy the equipment to stay competitive? Is this new equipment going to cut costs or increase revenue? These are the questions you should ask yourself before pursuing an equipment loan.
How long you’ll use the equipment If your financing agreement exceeds the amount of time you plan to use the equipment, financing may not be the right option — instead, leasing might be better. Even if financing is the only option, search for a lender with shorter or more flexible terms.
How quickly you need funds Some lenders will be able to fund approved requests in as little as one day. In other cases, you may need to wait several weeks to receive funds. Even if you’re in a hurry, it’s important to shop around for your best rate.
Requirements vary between equipment financing companies, but most look at your:
- Time in business
- Annual revenue earned
- Credit score
- Industry type
It’s a good idea to identify each lender’s basic requirements before applying for financing.
Interest rates and overall cost of financing
Equipment loan rates aren’t the only cost factor to consider. Some lenders may tack on additional fees and/or require a down payment. Always ask a potential lender about charges such as origination fees and other upfront costs.
Equipment loan FAQs
How does an equipment loan work?
Equipment loans are commercial loans that allow you to access the equipment you need without paying for it upfront. If approved for an equipment loan, you’ll be able to use the funds to buy the equipment and, in some cases, associated soft costs. Then you’ll need to make regular payments until the loan is paid in full, at which point you’ll own the equipment.
How can I get an equipment loan?
Equipment loans are made available by banks, credit unions and online alternative lenders. You must apply for the loan and meet all requirements as outlined by the lender and/or the SBA if applying for an SBA loan.
Can I get an equipment loan for bad credit?
Equipment financing options are available for borrowers with less-than-perfect credit. Equipment loans are secured loans that use the equipment itself as collateral — as such, small business owners may find it easier to get a secured loan, like equipment financing, when compared to other, unsecured commercial lending options.
Is it better to lease or buy equipment?
The decision to lease or buy depends entirely on your unique situation. Leasing may be a better option if the equipment is prone to becoming outdated (e.g., technology purchases) or you’re hoping to keep payments or maintenance costs lower.
Buying, on the other hand, may be a good option for equipment you plan to use for a longer period, or if you don’t want to be locked into potential use restrictions associated with a lease. Some leases do give you the option to buy the equipment at the end of the lease, though it might be more expensive in the long run.