Best Equipment Financing for Small Businesses

Introduction

Equipment financing loans are used to purchase specific assets which are then used as collateral for the loan. Lenders cater to a huge range of small businesses and industries. Equipment purchases tend to cover quite large expenses, such as commercial ovens for restaurants, a fleet of vehicles for a delivery business, office furniture, fixtures and fittings, and industrial machinery. 

If you default on your loan, the provider will be able to seize the equipment purchased to cover the debt. However, this is still a little less risky for borrowers than taking out a standard working capital loan, as no other business assets are at risk. 

The Best Equipment Financing Options for Small Businesses in 2021

We’ve scoured the online lending industry to hunt down the platforms with the best rates, most generous terms, and highest borrowing limits. Take a look at our table below to get an idea of what to expect. 

The Best Equipment Financing Option Explained

1. Lendio - Best for Long Repayment Terms

Lendio is a business loan marketplace that has an impressive network of more than 300 partner lenders. This greatly increases your chances of finding a good deal on equipment financing.

Lendio Features

Lendio has impressively long repayment terms of up to five years, which is rare for equipment financing. Plus, starting rates are a very respectable 7.5% and the flexible borrowing amounts mean businesses can cover small purchases right the way through to major expenditures.

Our thoughts

While Lendio has some of the best rates and terms around, you’ll need to meet some tough eligibility criteria and only 65% of applicants will be approved. If you have good credit, though, this should be your first port of call. Read full Lendio review.

2. GoKapital - Best for All-Around Financing Package

GoKapital is a relatively new alternative lender that puts flexibility and customer service at the forefront. Plus, no eligibility criteria are disclosed and the platform encourages all applications. 

GoKapital Features

GoKapital allows borrowers to purchase equipment up to the value of $5 million and has generous five-year repayment plans. Interest rates are better than you’d find at traditional banks and funding can be in your account within three days. 

Our thoughts

GoKapital might not be as transparent as some providers on our list but it makes up for this with top-notch customer service and a solid all-around equipment financing package. Read full GoKapital review.

3. Fundera - Best for Short-Terms Loans

Fundera is a loan marketplace that has partnered with some of the biggest industry names in order to provide some of the best rates and terms in the business. 

Fundera Features

Fundera offers the lowest starting rates on our list at just 4%, although it’s likely you’ll need excellent credit to access this. That being said, those with bad credit are welcome to apply to see what’s available and there’s no hard pull to your rating if you feel like pulling out at any time before signing.  

Our thoughts

Fundera has one of the best industry reputations for equipment financing and it’s relatively easy to qualify for one of their loans. It’s definitely worth checking Fundera out. Read full Fundera review.

4. Become - Best for Poor Credit

This new alternative lender is making waves in the industry for its incredibly fast funding times and open application process. Borrowing limits might be relatively low, but the lenient eligibility requirements will certainly attract a lot of customers.

Become Features

Become is one of the few online lenders that allow those with bad credit to apply for equipment loans and minimum score requirements are only 450. Unfortunately, Become doesn’t disclose the rates on its loans, but you can easily find out by submitting an application. If approved, you could receive funding within three hours. 

Our thoughts

Become is the best lender on our list for those with poor credit. The simple application process and great customer service team make it incredibly easy to get financing. Read full Become review.

5. Kapitus - Best for Well-Established Businesseses

Kapitus caters to an incredibly wide range of industries and just about any major equipment purchase you can think of will be covered here. It’s a little tough to find detailed information on rates, but the platform has built up a strong reputation over the last couple of years. 

Kapitus Features

Kapitus offers up to 100% financing on equipment loans, so the sky’s the limit in terms of what you’d like to purchase. Coupled with a simple application process and fast funding, you’re definitely on to a winner. However, keep an eye out for the strict eligibility criteria as only well-established businesses will be able to apply. 

Our thoughts

Kapitus is definitely worth a look, especially if you work in a niche industry and have struggled to get financing elsewhere. Read full Kapitus review.

Who Qualifies for Equipment Financing?

Underwriting standards for equipment financing vary across lenders, but you’ll usually find some common themes:

• High credit requirements - For the most part, lenders are looking for borrowers with at least good credit, with scores of around 600 and above. Although bad credit options can be found, it’s not usually the norm 
• Time in business - You’ll often find platforms will require borrowers to have at least two years of business experience. This is because equipment purchases usually involve very large asset purchases and lenders want to know that you have the business acumen to repay it. This means it’s tough for brand new businesses to apply
• Minimum revenues - Minimum revenues are often actually lower than other types of borrowing. This is because the loan will be secured against the asset so your cash flows are less important. They’re often around $50,000 but could reach six figures at some lenders

How Does Equipment Financing Work?

Business equipment financing is usually viewed as a more cost-effective and lower-risk way to acquire machinery than other forms of financing. Plus, with heavy equipment financing, you get to maintain your cash reserves because you don’t need to purchase the item outright. Each lender that offers equipment financing and small business equipment loans will have different terms, but you can usually find a lender that will finance around 80% of the asset’s total purchase price. 

Generally speaking, you will need to pay the initial 20% of the cost and then repay your lender over the term of the agreement in regular payments. The amount you borrow will usually determine the length of the loan. 

Equipment Financing Rates

A lot of different factors go into determining your rates when applying for equipment financing. However, as a very rough guide, you can expect the following:

Of course, your credit rating, financial history, profit and loss information, and monthly revenue will all play big parts in the final terms you’re offered. In addition, lenders will apply other undisclosed criteria and platforms are very reluctant to share exactly how your final rates are calculated. Generally, the better your credit score and higher your income, the lower your final rate.

Opting for finance will almost always be more expensive than buying the asset outright, but it has a much smaller impact on your cash flow.

Equipment Financing Pros and cons

Pros

• Fast approvals - Since the asset is being used as collateral it’s usually much faster to arrange this type of lending. As you can see, most of the lenders on our list offer equipment financing within 24 hours of approval
• Spread the cost - Equipment purchases tend to be quite expensive. Financing is the perfect way to spread the costs over a long period of time so your cash flow doesn’t take a hit
• No additional collateral needed - Your other business and personal assets aren’t at risk if you default on a loan. Only the asset you’ve applied to secure a loan will be seized if you default
• Tax benefits - You can write off all of your loan repayments as tax-deductible expenses, helping you to minimize your total bill at the end of the year
• Fuel growth - For small businesses that might not have the capital to purchase large pieces of equipment, loans are a real lifeline. The injection of cash can prove an incredible boost to growth

Cons

• Tougher eligibility criteria - Most lenders are looking for applicants with good credit scores and strong business history. This is to ensure the funding is going to an experienced business that can handle the responsibility of large asset management
• Restricted applications - Your loan purpose is very strictly limited to the specific asset you want to purchase. Other types of working capital loans offer a lot more flexibility

Final Thoughts

If you’ve got your eyes on a piece of gear that could help boost the sales of your business, there’s a good chance that equipment finance could work for you. There are now more top-quality providers than ever before on the market and the application process is incredibly straightforward. 

In many cases, you could receive your funding in as little as 24 hours and it’s a great way to spread the cost of a big expense. Some might find that equipment financing is a little restrictive or that eligibility requirements are a little strict, but this shouldn’t put too many customers off. If you’ve got a good credit score and a history of solid business performance, we highly recommend financing your next equipment purchase with a loan to stay on top of your costs.