Financing equipment for your business? Read this first.

4 min read
image of woman operating large equipment

Regardless of what type of business you run, how many employees you have, or where your business is located, there’s one thing you can’t do without—equipment that works. Outdated or broken equipment can cause major operational challenges.

From laptops and POS systems to compactors and loaders, malfunctioning equipment will inevitably lead to production bottlenecks, a poor customer experience, and eventually a blow to your bottom line.

Despite its importance, replacing equipment isn’t always easy. The upfront costs can easily deplete your cash flow and leave you wondering how to move forward. The good news? You have options.

If you’re unable to cover the up-front costs of equipment repairs or replacements, then financing may be the best way to keep your business up and running.

What’s the best way to finance business equipment?

Like most decisions in business, one size does not fit all. The best equipment financing for your business will depend on a variety of factors including your current finances and the type of equipment you need. Consider all your options before selecting one.

Businesses with cyclical sales are good candidates for short-term loans because it may help resolve temporary cash flow shortages. A short-term loan can help cover the gap if you are looking for funding to cover unpaid supplier bills and other expenses.

SBA funding

The Small Business Association (SBA) offers lots of financing options, including the SBA 7(a) loan program, which can be used to assist in equipment purchases. SBA 7(a) equipment loans are available for up to $5 million and are typically considered long-term loans with a term of ten years.

To be eligible for an SBA loan, you must operate as a for-profit business in the U.S. or its territories, meet the SBA’s definition of creditworthiness, and have what the SBA considers to be “reasonable owner equity to invest.”

Keep in mind that SBA loans also take longer to process so you may need to wait several weeks or longer to make your equipment purchase.

Short-term business loans

Short-term business funding can be secured through traditional or online lenders. These days, an increasing number of business owners are turning to online lenders for help.

Short-term business loans through a reputable lender can help you secure funds quickly and avoid a lengthy or overly complicated application process. Lending requirements are also typically less stringent than those associated with an SBA loan.

For example, QuickBooks Capital requires that applicants have a 620+ FICO score and show six months of activity within their QuickBooks account. Funding is available in as little as 1 – 2 business days after approval. Equipment purchases can be made quickly, as opposed to waiting several weeks.

As a short-term lending solution, these loans also allow you to purchase your equipment outright without waiting years to pay it off. This limits the risk that you’ll be “upside down”— or owing more than the equipment is worth—on your equipment financing.

What could you do with funding?

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Though many business owners may prefer to own their equipment, leasing still represents a viable option. In this case, you rent the equipment in exchange for fixed, recurring payments. At the end of the lease, you can typically return, upgrade, or purchase the equipment.

Leasing can potentially mean lower monthly and upfront costs, making it budget friendly. It may also be well suited for equipment that requires frequent upgrades or maintenance.

Leasing can potentially mean lower monthly and upfront costs, making it budget friendly. It may also be well suited for equipment that requires frequent upgrades or maintenance.

Keep in mind that leasing usually results in higher costs over time, particularly when interest is factored in. Even though leasing may be more accessible for some borrowers, lease terms can be stringent or longer than you need.

Before leasing equipment, always evaluate your options to determine which will provide more benefit in the long run.

Invoice factoring or invoice financing

Both invoice factoring and invoice financing allow you to leverage a percentage of your invoices or accounts receivable to increase cash flow. As such, your borrowing limit cannot exceed the total value of your outstanding invoices.

While the two are similar, there is a notable difference between them. Invoice factoring refers to the sale of the invoices. This means you no longer own the invoices and collection efforts will be carried out by the factoring party. With invoice financing, you maintain ownership of the invoices and collection efforts.

Keep in mind that some invoice factoring or financing companies only work with B2B companies, so this may not be a good option if your business is a B2C. And some factoring companies do not extend their services to businesses within specific industries, such as gambling or medical.

Credit cards

In some cases, you may be able to finance your equipment purchase through a credit card. This is particularly true for small purchases, as credit card limits are typically lower than those associated with other types of funding.

If you are thinking about using a credit card, it’s important to take note of your APR, as it may be higher than those associated with small business funding. Whenever possible choose a credit card with the lowest APR to minimize interest. However, keep in mind that credit card interest is often higher than other funding options. Interest can accumulate quickly, making it more expensive and difficult to pay off the equipment.

Choosing the best equipment funding for your business

Before you fund your next equipment purchase, there are a few questions you should ask yourself. The answers will guide you towards the best funding option for your specific financial needs.

1. How much will the equipment cost?

Some financing options, like credit cards, carry lower limits and may not be ideal for financing large purchases.

2. How’s my credit?

In most cases, the most affordable funding options, like small business loans, will carry specific credit requirements. For example, QuickBooks Capital requires applicants to have a personal FICO score of 620 or higher. Before you apply for any funding, it’s important to make sure you know where you stand credit-wise.

3. How soon do I need the funds?

If you need to replace equipment right away, some lending options may not be ideal. That’s particularly the case when it comes to SBA loans, though it can also be true of small business funding through traditional lenders. If time is of the essence, it may be in your best interest to seek funding through a reputable lender like QuickBooks Capital.

4. How quickly can I pay back the loan?

Typically, the quicker you can repay a loan, the less interest you will pay. If you can budget for short-term business funding, you’ll likely find that it will save you more in the long run. 

We want to hear from you! What do you think?

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