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How do Equipment Loans Work?
How Equipment Loans Work
Small business equipment loans fund the purchase of a variety of small to large equipment for your business. An equipment loan is typically used by small businesses looking to preserve cash by taking the cost of the equipment and spreading it out over 3-7 years. Equipment loans can be used to replace existing equipment, refinance equipment, or to purchase new equipment as your small business grows.
Is there standard equipment that is eligible? Most equipment is eligible unless is will be attached to a building or shipped outside the country.
Typical Equipment Types we have funded:
Vehicles, including semi-trucks, box trucks, and vans.
Machinery: Manufacturing equipment, medical equipment, software, restaurant, printers, bulldozers, computer equipment, CNC machines, and construction cement mixers.
Medical equipment such as x-ray machines and diagnostic machines.
Equipment Loan Rates, Terms & Qualifications
Loan amounts:$10,000 - $2,000,000
Rates:4% - 12%
Down payment: 5% or less
Credit score: 600+
If you have a credit score above 650 and have money for an initial payment, you may qualify for up to $250K in quick, hassle-free equipment funding.
Capital vs. Operating Lease
What suites your needs?
Capital & Operating leases are standard examples of equipment leasing most commonly offered.
A capital lease allows the business to depreciate the equipment, to benefit from a stated end of lease option and ownership while a slightly higher payment.
An operating lease trades ownership for lower monthly payments, the benefit of expensing all payments and more flexible terms as well as the ability to replace assets frequently with a lower.
When to Use a Capital Lease
Small business owners should consider using a capital lease if they will benefit from the flexibility of leasing combined with the benefits of ownership, such as depreciating the asset to offset income and a negotiated purchase price at the end of the lease term. This is ideal for businesses that intend to ultimately purchase the asset.
Some situations where you’ll want to use a capital lease are:
Your business needs equipment with a long shelf life: If your needs include equipment that typically has a long, useful life, such as heavy machinery and manufacturing assets such as machines, tools and dies.
Your business wants to own the equipment at the end of the lease: Capital leases generally include a purchase option, either a $1 or 10% buyout, which can be exercised at the end of the lease, making them ideal if you intend to keep the asset.
Your business has a high income and can benefit from asset depreciation: A capital lease is considered ownership from a tax standpoint, so you can write the asset depreciation off under Section 179 to offset income.
Borrowers should consider a capital lease if they intend to ultimately own the equipment. Choosing between a $1 and 10% buyout comes down to two factors: monthly payments and balloon payment. The $1 buyout may be better for businesses comfortable with the higher payments, as it eliminates the balloon payment at the end.
When to Use an Operating Lease
For starters to maximize the tax write off on the payments on equipment that may or may not be of use in 4-5 years. Owners consider an operating lease when the flexibility of a lease combined with the ability to trade for newer equipment more often. This is ideal for businesses that do not want to keep the asset long term and don't want depreciation now to haunt them later.