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Equipment Financing: Best Business Loan Options

Andrew L. WangApril 7, 2020

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Equipment financing is available from online lenders, at loan amounts up to $2 million and rates starting around 6%.

Equipment financing lets you finance up to 100% of the cost of new or used equipment for your business, such as ovens for a restaurant, machinery or company cars. You’ll want to compare your equipment loan options and find the most cost-effective way to finance the purchase.

In most cases, your decision will depend on your business needs, your budget and the state of your personal and business finances. Here’s a look at some equipment financing options.

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Our pick for

Overall equipment loan

Currency is an online lending platform that mostly focuses on equipment loans. It provides higher financing amounts at lower rates than several other online lenders.

Currency - Equipment financing

Currency - Equipment financing

Est. APR

6.00 - 24.00%

Min. Credit Score

585

Currency is an option for business owners looking to finance the purchase of new equipment.

Pros

  • Competitive rates among online lenders.

Cons

  • Prepayment penalty in some cases.
  • Requires business lien and personal guarantee.
Read full review

Qualifications

  • Minimum credit score: 585.
  • Minimum time in business: 6 months.
  • Minimum annual revenue: $75,000.
  • Must have a net loss no greater than 10% over the past 12 months.

Our picks for

Equipment financing for items under $50,000

OnDeck - Online term loan

OnDeck - Online term loan

Est. APR

9.00 - 99.00%

Min. Credit Score

600

OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand.

Pros

  • Cash can be available within the same business day.
  • Requires low minimum credit score.
  • Less paperwork than most lenders.

Cons

  • Fixed-fee structure means early repayment will not save interest.
  • Requires frequent (daily or weekly) repayments.
  • Requires business lien and personal guarantee.
Read full review

Qualifications

  • Minimum credit score: 600.
  • Minimum time in business: 3 years.
  • Minimum annual revenue: $250,000.
  • No bankruptcies in the past 2 years.
Credibility Capital - Online term loan

Credibility Capital - Online term loan

Est. APR

19.99 - 24.99%

Min. Credit Score

680

Credibility Capital offers low-cost business loans that work best for small-business owners with strong credit.

Pros

  • Competitive rates among online lenders.
  • No prepayment penalty.
  • Extra monthly payments can save interest cost.

Cons

  • Short repayment term results in higher payment amounts.
  • Requires high minimum credit score and revenue.
  • Requires business lien and may require personal guarantee.
  • Not available in Nevada, North Dakota, South Dakota, or Vermont.
Read full review

Qualifications

  • Minimum credit score: 680.
  • Minimum time in business: 2 years.
  • Minimum annual revenue: $250,000.
  • No bankruptcies in the past 5 years.

Our picks for

Equipment financing for items $50,000 and over

SmartBiz - SBA loan

SmartBiz - SBA loan

Est. APR

6.73 - 10.29%

Min. Credit Score

650

SmartBiz’s low-cost SBA loans work best for established businesses that want to finance an expansion or refinance debt.

Pros

  • Competitive rates among online lenders.
  • Faster than getting an SBA loan from a bank.

Cons

  • Must have strong financials, supported by personal and business tax returns for the past 3 years.
  • Stringent rules on use of proceeds.
  • Requires business lien and personal guarantee.
Read full review

Qualifications

  • Minimum credit score: 650.
  • Minimum time in business: 2 years.
  • Minimum annual revenue: $50,000.
  • No bankruptcies or foreclosures in the past 3 years.
Funding Circle - Online term loan

Funding Circle - Online term loan

Est. APR

12.18 - 36.00%

Min. Credit Score

660

Funding Circle is an option for established businesses that are financing an expansion or refinancing debt.

Pros

  • Cash can be available within 3 business days.
  • Competitive rates among online lenders.
  • No minimum revenue requirement.

Cons

  • Requires business lien and personal guarantee.
Read full review

Qualifications

  • Minimum credit score: 660.
  • Minimum time in business: 2 years.
  • Minimum annual revenue: None.
  • No bankruptices in the past 7 years.

Apply for the SBA Paycheck Protection Program.

Does your small business need COVID-19 relief? Learn about the program and apply on Fundera.

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Summary of Equipment Financing: Best Business Loan Options

LenderBest ForEst. APRMin. Credit Score
Currency - Equipment financing

Currency - Equipment financing

Best for: Overall equipment loan

6.00 - 24.00%

585

OnDeck - Online term loan

OnDeck - Online term loan

Best for: Equipment financing for items under $50,000

9.00 - 99.00%

600

Credibility Capital - Online term loan

Credibility Capital - Online term loan

Best for: Equipment financing for items under $50,000

19.99 - 24.99%

680

SmartBiz - SBA loan

SmartBiz - SBA loan

Best for: Equipment financing for items $50,000 and over

6.73 - 10.29%

650

Funding Circle - Online term loan

Funding Circle - Online term loan

Best for: Equipment financing for items $50,000 and over

12.18 - 36.00%

660

What is equipment financing?

With equipment financing, the loan amount you qualify for depends on the value of the equipment you are purchasing. The equipment also serves as collateral for the loan, so the lender can seize it if you fail to repay the loan.

Traditional banks typically offer the most favorable interest rates and terms, but they have strict credit standards. Online small-business lenders are another equipment financing option, especially if you need to purchase equipment quickly or if your personal and business finances aren’t in excellent shape.

The size of the loan should match the price of the equipment you’re purchasing, while the loan term should match how long you expect to use the new equipment. If you’re buying commercial ovens that you expect to use for five years, get a loan with a five-year term. A shorter term may have you scrambling to make payments, and a longer term means you’ll be paying for the equipment after you stop using it.

Equipment financing pros and cons

Pros

  • An equipment loan is usually the financing option with the lowest interest rate.
  • You’ll own the equipment outright. Once the loan is repaid, business owners who own equipment but need cash for other business purposes may opt to arrange a sale-and-leaseback agreement. This involves selling equipment to a lender in return for quick cash and then leasing it from that lender.
  • At tax time, the interest you’ve paid is deductible, and you’ll also enjoy a depreciation tax benefit.

Cons

  • If the financed equipment becomes outdated, you’ll need to sell or dispose of it.
  • An equipment loan may require a high initial down payment.

Equipment leasing option

Many vendors offer leasing as a financing alternative.

Equipment leasing can help reduce costs and maximize an investment. For instance, a piece of equipment becomes less valuable and productive as it gets older, so leasing it for a limited time may be a smart move.

Some financing companies also offer the option of buying the equipment at current market value.

Leasing generally is more costly than buying if you end up using the equipment for a long time. According to the Equipment Leasing and Finance Association, leasing is “likely the preferable option” for equipment you plan to use for 36 months or less. If you’ll use it for longer, it makes more sense to buy.

Find and compare small-business loans

NerdWallet has created a comparison tool of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged the lenders by categories that include your revenue and how long you’ve been in business.

Last updated on April 7, 2020

To recap our selections...

NerdWallet's Equipment Financing: Best Business Loan Options