Equipment financing for startups is a type of loan, however, the advantage of this loan is that the equipment becomes the collateral/guarantee for the loan itself. This means that it is not only easier to be approved for the loan but you do not need any of your own capital in order to purchase the equipment.
What Kind Of Business Equipment Can You Finance?
You can finance most types of new or used equipment, depending on the lender you choose. Essentially, any legal piece of equipment you need to run your business can be financed in some way. Here are a few specific examples, though:
- Heavy equipment like tractors, backhoes, and excavators.
- Company vehicles used for business purposes, like semi-trucks.
- Furniture for offices including desks, chairs, and other accessories.
- Medical devices and dental equipment.
- Exercise machines and other major costs of opening a gym
- Phone and voicemail systems you’d see in an office setting.
- Computers, desktops, and laptops.
- Cameras and photography equipment.
- Restaurant equipment like ovens and mixers.
The list can go on, but this gives you a sampling of what you can finance. On the other hand, the things you can’t finance is a shorter list. Typically, you can’t always finance a property, since that’s a separate loan called a commercial real estate loan. Additionally, rare or specialty business equipment you may not be able to finance since a lender can’t get an average on how much they should realistically be lending you.
How To Qualify For an Equipment Loan
What you’ll need to present for paperwork will largely depend on the lender you choose. Some simply have more rigorous standards than others. For example, online lenders and big-name banks will likely have a longer application process than your local credit union, so consider this when applying.
Generally, you’ll need the following to stand a chance of qualifying for an equipment loan:
- A good credit score: You don’t need a good score, but having one is going to make the process a whole lot easier. Plus, you’ll qualify for the best rates, reducing how much you’ll pay over the life of the loan.
- At least a short history as a business: Most lenders won’t offer financing to brand new businesses, since they can’t be sure the business will do well and they can’t be sure they’ll get paid. You’ll likely need to be in business for at least six months before qualifying for financing.
- Proper financial statements that are organized well: If you have an accountant who organizes your financials, they’ll be your best friend during the equipment financing process. You’ll need quite a bit of documentation including business licenses, profit and loss statements, and more.
Equipment Loans For a Startup - Pros and Cons
Final Word
Equipment financing can help new businesses pay for expensive, but vital equipment needed to run their business. For many startups, it means getting much-needed cash, even when your business is young. Keep in mind that good credit borrowers will qualify for the best rates, but there are still equipment financing options for those with poorer credit.