Equipment Loans for Manufacturers: What are my options?

Business Guides

Jacques Famy Jr
Review By Todd Millman

Are you in need of new or used equipment for your manufacturing company but unsure how you’ll be able to afford it? Are you turning to financing? Have no fear. Many manufacturing companies secure their equipment through various equipment loans with options designed for purchasing or leasing. Whether you’re searching for machinery you need to buy or need to replace because of soft costs, the loan and/or lease options explored in this article will get you started in the right direction. Though the cost for commercial machines can be high, utilizing a lender to lease or buy manufacturing equipment is the right way to go.

Manufacturing Equipment Needs

Manufacturing need equipment to perform daily operations and earn their revenue. Using an equipment loan to procure these valuable pieces of manufacturing equipment is a great idea because when your business is able to perform at its best, you will be profitable. Here are just a few examples of the kinds of new and used equipment that can be purchased with business equipment funding.

  • Fabrication Equipment
  • Industrial kitchen equipment
  • CNC Machines
  • Heavy equipment
  • Machine Tool Financing
  • Medical tools and machines

Benefits of Equipment Financing when buying Manufacturing Equipment

Any manufacturing business can see that equipment financing is one of the best ways to secure large or heavy equipment needed for daily operations without using up your cash reserves. There are some great benefits to manufacturing equipment financing, including:

  • Up to 100% of the financing needed for new equipment cost or necessary repairs.
  • Protect cash flow verses outright purchase from assets
  • Terms are attractive because costs are based on principal and interest rates, or factor rates, not revenue or other factors.
  • Loan approval from an online lender in as little as two days or sooner for smaller loan amounts under $10,000.
  • Competitive terms with financing up to 60 months for many manufacturing equipment options financing options.
  • Quick credit decisions. Funding same business day in some cases

Important factors when thinking about Manufacturing Equipment Financing: 

  • How long do you expect to own the equipment?
  • Choosing the right equipment at the right price.
  • Choosing used equipment vs. new equipment
  • Is this a short term or long term need?
  • Do you want to deplete your cash reserves to purchase equipment or free up cash reserves for a rainy day?
  • What is the expected utilization of the equipment – number of miles or service hours?
  • How much and how quickly is the equipment expected to depreciate in value?
  • Does the loan amortization or lease payment meet your goals for potential resale or trade-in value?
  • Do you want to lease equipment or want to do an equipment purchase?

Manufacturing Equipment Loans vs. Equipment Leasing

When you’re considering how to acquire the equipment your manufacturing business needs, you can consider both manufacturing equipment financing and another option, equipment leasing. Leasing has payback schedules of about 60 months, and the machinery is usually returned to the owner after loan terms are complete. Leasing qualifications are much less rigorous, however manufacturing equipment financing can be a better option in the long term.

When your manufacturing company decides to utilize equipment financing, your business invests in the equipment. Then, after making so many payments over a set period of time, you own the equipment outright. For this reason, equipment financing is better than equipment leases if you’re considering the long-term, because the equipment will then become a valuable asset to your business.

However, don’t discredit leases. If your business needs a more flexible option or has to replace the equipment in the near future, then leasing options verses buying equipment may be best. There are two types of equipment leasing arrangements to consider:

  • Capital lease: The most common leasing arrangement, in which you buy the equipment at the end of the term. Fair market value lease enables you to purchase the equipment at market value when the lease expires.
  • Operating lease: You return the borrowed piece of equipment at the end of the agreement, then lease or purchase new equipment – best for tools with high turnover or necessary updates.

Weighing the Pros and Cons of Manufacturing Equipment Financing

Equipment Financing Pros:

  • You can obtain the funds you need, fast. Once you qualify, your business will have access to the necessary money to buy essential construction tools and machines.
  • The terms are more flexible than traditional loan options.
  • Monthly Payments
  • Online application
  • Making payments on time will have a positive impact on your credit score.
  • No prepayment penalties
  • Receive funding in days not weeks

Equipment Financing Cons:

  • If you have a bad credit score, the lender may require a blanket lien, which gives other businesses assets if you miss a payment. Or, a personal guarantee might be in place, meaning you are personally liable for missed payments.
  • Down Payment required
  • Collateral requirements
  • Sometimes the length of the loan term surpasses the life of the machine.
  • If you can’t make payments, your business might end up in financial trouble.
owning your own equipment

Additional Manufacturing Equipment Financing Options

There isn’t just one way to finance equipment. Not only are there loans and leases from traditional lenders, alternative lenders have solutions as well. New equipment can also be bought with funds from a loan, or other type of financing with a flexible repayment term. Many online lenders offer various funding options with flexible terms that your manufacturing business can choose from when considering how to purchase the equipment that traditional lenders do not have. More options are explored below.

Short-Term Loans

If equipment financing isn’t the best option for your business, then you could consider a short-term business loan. This type of finance plan involves a lump sum of money given to a business, then paid back over a designated period of time. Short-term loans can be used to purchase commercial equipment, or for whatever your business needs are at the time. No matter what type of manufacturing equipment you’re looking to buy, short-term loans can be a financing solution to help you make the purchase.

Long-Term Loans

long-term business loan can be valuable for construction companies. The borrower provides a lump sum of money to a business upfront, then businesses can use the cash for whatever they need. In this case, to make necessary equipment purchases. Loan amounts are large, so longer payment plans with extended repayment terms are necessary in order to make them affordable. Annual revenue requires are necessary for this product.

SBA Loans

The Small Business Administration (SBA) offers a number of loans, but the requirements are often very specific. The SBA is not actually the borrower, but a government agency that provides loan program guarantees of up to 85% of the amount provided through SBA-approved borrowers. 

These loans offer low-rate and long-term financing solutions for small businesses. SBA loans can be used to buy equipment. The three main programs are the 7(a) Loan Program, the Small Business Microloan Program, and the CDC/504 Loan Program. This a great machine tool financing option.

Business Cash Advance

Another financing option for securing business equipment is through a business cash advance. This type of financing option, also called a purchase of future sales agreement, allows businesses to sell a portion of their future sales. The business owners then have to pay back the fixed payback amount at a fixed cost. Repayment continues until the payback amount is paid back in full. This type of financing is a way to get money fast in order to buy needed machine tools. Excellent product for working capital needs. Flexible repayment terms.

Securing Business Equipment from Equipment Financing Companies

No matter if you use equipment financing or business loans, the process for securing the best equipment will be similar. The most important thing to consider once you qualify for financing is your ability to make the payment on the equipment. The cost of equipment is high, which is why finding the money from the right lender (at the most competitive interest rates) to buy the machinery you need is top of mind for manufacturing companies.

Thankfully, with so many traditional and alternative financing options to qualify for, your business will be able to buy the fabrication equipment it needs with the help of a lender. Considering a business loan or equipment financing is vital to ensuring your business can continue to operate smoothly. 

Finding the best equipment financing companies is key. With a partner like AdvancePoint Capital, businesses can qualify for the financing you need, no matter the time in business, type of equipment you need, or credit history. Advancepoint has more options than other lenders and we consider ourselves industry experts. Contact AdvancePoint Capital today to start exploring alternative funding options for your heavy equipment needs.

Frequently Asked Questions

Can you get a loan for equipment?

There are many options today in finding the right manufacturing equipment financing.

How do you qualify for equipment financing?

The cost of the equipment and whether it's new or used equipment will dictate the financing options, qualifications and requirements. In some cases just an application and bank statements are required and in other cases, financial statements like tax returns will be required.

What type of loan is equipment?

Typically financing comes in the form of a loan options or leasing options.

What is the interest rate on equipment loans?

Not trying to avoid the question but manufacturing Equipment loans and leases have a wide range of rates and flexible terms based on the equipment, credit history, business cash flow and profitability all impact fin. Definitely get multiple quotes so you can compare, choose, and save.

Jacques Famy Jr
author social link
Jacques Famy Jr

Small Business Loan Calculators

Calculate your financing costs using our nifty calculators now.

advancepoint get quote now
advancepoint get quote now