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 finance? Have no fear. Many manufacturing companies secure their equipment through various equipment loans with options for purchasing or leasing. Whether you’re searching for machinery, you need to buy or 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 of commercial machines can be high, utilizing a lender to lease or buy manufacturing equipment is the right way.

Manufacturing Equipment Needs And Financing Options

Manufacturing needs equipment to perform daily operations and earn revenue. Procuring quality tools necessary for daily tasks doesn't need to be a struggle. Choosing an equipment financing method, like equipment financing agreements, can simplify the process. Such financing strategies prove to be both convenient and profitable, letting your business flourish with the right equipment. Here's an illustration of some new and used pieces of equipment you could secure with the aid of equipment financing.

  • Fabrication Equipment loan prerequisites might include components like minimum credit scores or the business's industry risk evaluation.
  • Industrial kitchen equipment
  • CNC Machines
  • Transportation equipment, like Heavy-duty tools which could ideally be financed with transportation equipment financing.
  • Machine Tool Financing
  • Medical tools and devices, with lending prospects offered through specialized equipment financing firms.

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.

An additional bonus is that equipment financing allows for necessary repairs or upgrades without draining your financial resources, whether it be trucks, excavators, cranes, backhoes, or bulldozers. Backhoes and truck financing come under such schemes, thanks to specialized equipment financing companies offering tailored loans based on the type of equipment your business requires.

Plus, you get to retain ownership of the equipment at the end of the loan term—a feature unique to this form of business lending.

There are some remarkable benefits to opt for manufacturing equipment financing including both monetary perks and the convenience it offers. With financing covering up to 100% of the costs for new equipment or necessary upgrades, you can protect your cash flow versus outright purchase from assets. The terms are particularly attractive; costs are determined based on principal and interest rates, or factor rates, not revenue or other variables.

Loan approval from an online lender could happen within a day or even sooner for smaller loan amounts under $250,000, like potentially for backhoes or commercial truck financing —dependent, of course, on the receipt of required documentation and underwriting guidelines. This could mean access to funds on the same business day in certain scenarios.

Competitive terms bring additional perks, offering financing for up to 60 months on many manufacturing equipment financing options, making it easier for businesses to manage their installments. As repayment occurs, equity in the purchased equipment is gradually built, reinforcing your business's ownership claim. In essence, the system offers a seamless blend of financial protection, growth opportunity, and operational convenience.

Important factors when thinking about Manufacturing Equipment Financing

Here are some important factors to consider when considering financing or funding for manufacturing equipment and machinery.

  • 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 considering acquiring the equipment your manufacturing business needs, you can consider manufacturing equipment financing and another option, equipment leasing. In relation to manufacturing equipment financing, it includes entering into equipment financing agreements where the funder procures the equipment upfront, often covering soft costs like delivery, installation, and warranties. Your business then pays monthly installments. This arrangement eventually leads to complete ownership of the equipment after the loan stands fully paid - a feature that enhances your business's long-term asset portfolio in comparison to equipment leases.

On the flip side, equipment leasing programs can be attractive if they offer 100% financing with sometimes no down payment, encompassing paybacks for up to 60 months and returns of the machinery to the owner post loan term completion. Given their less rigid underwriting guidelines, equipment leasing could be more accessible for some businesses.

Consider the following equipment leasing arrangements;

  • Capital lease, where you gain ownership of the equipment once the term concludes
  • Operating lease, which sees you return the borrowed piece of equipment at the end of the agreement before leasing or purchasing a new one.

Such lease offerings are widely provided by lenders with an emphasis on accessibility and rapid funding and approval processes. Nonetheless, it is crucial to note that each requires thorough credit score reviews and complies with bank underwriting guidelines and processing times.

Weighing the Pros and Cons of Manufacturing Equipment Financing

To consider the possibilities that manufacturing machinery loans can bring us, here are the pros and cons for option manufacturing equipment loans & financing.

Manufacturing Equipment Loans & Financing Pros:

  • You can obtain the funds you need fast. On the upside, once you qualify under specific eligibility criteria—depending on your equipment financing company's credit, business finances, and down payment amounts—your business will have access to the necessary money to buy essential construction tools and machines.
  • These loans offer more flexible terms than traditional loan options.
  • Monthly payments provide an effective method to stay on top of your financial commitments.
  • The beauty of an online application is it offers convenience and reduced processing time.
  • Making payments on time is not only a good business practice but also has a positive impact on your credit score.
  • There's no downside associated with early debt clearance, thanks to no prepayment penalties.
  • Receive funding in days, not weeks. However, it's worth noting that one downside with some providers like 1West is that their funding speed of one week is longer than many other providers. So, choosing a provider with quicker funding should certainly be an important criterion.

Manufacturing Equipment Loans & 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 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 be in financial trouble.
manufacturing equipment loans

Additional Manufacturing Equipment Financing Options

There isn’t just one way to finance the equipment. Not only are there loans and leases from traditional lenders, but alternative lenders also 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, you could consider a short-term business loan. This type of finance plan involves a lump sum of money given to a business which then has to be paid back over a designated period of time. Short-term loans, have less stringent loan eligibility requirements, are quite flexible. They can be used for a diverse range of requirements—whether it's purchasing manufacturing equipment, entering into equipment financing agreements, or even financing a commercial fleet vehicle. So, regardless of your specific need, short-term loans can serve as a potent solution to facilitate your acquisition.

Long-Term Loans

A long-term business loan can be valuable for manufacturers. The lender can provide a larger sum of money to a business due to the long term nature of financing. es. These loan amounts can go as high as $1,000,000 or more, thus requiring longer payment plans with extended repayment terms for affordability. Also, note that there are underwriting guidelines and a required minimum annual revenue for this product. Remember to factor in soft costs such as delivery expenses, installation, maintenance, warranty, and additional taxes.

SBA Loans

The Small Business Administration (SBA) offers a number of loans, but the requirements are often very specific. The criteria set by the SBA is stringent as it is a government agency that extends loan program guarantees of up to 85% of the amount through SBA-endorsed borrowers. Such as a Balboa Capital loan, these loans provide feasible low-rate and long-term financing solutions for small businesses, even extending to cover soft costs such as taxes. SBA loans can be used to purchase equipment, ranging from complex industrial machinery .

The three primary programs are the;

  • 7(a) Loan Program
  • Small Business Microloan Program
  • CDC/504 Loan Program

Business Cash Advance

Another financing option for securing business equipment is through a business cash advance. Termed as the purchase of future sales agreement, this method allows thriving businesses to leverage their future gross sales.

By selling a portion of their projected income, they gain quick access to funds for immediate needs like equipment purchases or upgrades. With a minimum credit score of 550 ( and sometimes lower), businesses can expect funds as soon as the same day. Business owners would then repay the fixed payback amount at a fixed cost, offering them benefits such as convenience and flexible repayment terms.

This type of financing is not just an avenue to fast-track procurement of indispensable machine tools but also a prime solution for addressing working capital needs as well, making it a popular choice among establishments with significant annual gross sales. Its accessibility and adaptability to various business scenarios ensure that repayment continues until the full payback amount is settled.

What Kind of Equipment Can I Finance?

Almost any type of business equipment you need can be financed, including but not limited to: computers and IT equipment, machinery, tools and dies, office furniture, commercial vehicles, kitchen equipment, medical and dental equipment. Equipment vendors often provide attractive finance solutions. If you're unsure whether the equipment you need can be financed, consult a loan specialist or financial advisor. They can provide specifics such as vendor options, depreciation effects, and tax benefits.

How Long is an Equipment Loan Typical for?

Equipment loan terms will vary across lenders. The average loan term for business equipment is from three to seven years as per certain loans methodology. Some credit unions even offer terms up to 10 years. Another type of solution, like small business equipment financing, typically comes with a fixed term — generally around five years, though specific lenders such as a leasing company may offer shorter or longer timeframes. Remember, the term length will greatly influence your monthly payments and the total cost of the loan over time.

How Equipment Financing Works

Understanding the Equipment Financing Process

Understanding the equipment financing process is crucial to making an informed decision for your business. The steps are as follows:

STEP #1 Identify Your Equipment Needs

Discerning the nature of the equipment you require (ranging from industrial machinery to office furniture), along with the cost it will incur, sets the foundation. Websites like Advancepoint Capital can provide a comprehensive list of equipment and estimated costs.

STEP #2 Apply for Financing

You can easily fill out an application with a lender online. Typically, these applications ask for information on your business and your financial health. Ensure to provide an active email address for seamless communication.

·1- Page application

·3 Months Bank Statements

·Invoice for Equipment being purchased

STEP #3 Choose Your Plan

Based on your application, lenders will lay out multiple financing options for you. Review these thoroughly and select the plan that caters to your needs the best.

STEP #4 Purchase Your Equipment

Once approved, purchase your equipment using the disbursed funds, which are often available within a 24 hours window.

STEP #5 Start Repayments

The final step involves starting repayments on the loan as per its terms. The moment the equipment loan is paid off, the machinery belongs to you. Through this process, make sure to regularly update yourself with the necessary details through our website.

Requirements for Equipment Financing

Here are the typical requirements for equipment financing:

  • Time in Business: Many lenders require businesses to have been operational for at least a year to qualify. No minimum time in business is specified by some lenders, yet the "at least one year" rule is quite common. Understanding these facts meets the minimum criteria for eligibility.
  • Credit Score: An applicant should ideally have a personal credit score of at least 650. Lower scores may still qualify but may encounter less favorable terms. Researching the facts can shed light on lenders that are vague about the minimum credit score requirement.
  • Industry and Equipment Type: Certain industries and equipment types may have equipment loan criteria more strict or lenient than others. For instance, businesses in riskier industries may need to provide a larger down payment.
  • Revenue: Businesses should have at least $200,000 in annual revenue. However, some financial institutions have a $500,000 minimum annual revenue requirement
  • Financial Documentation: It is important to be prepared with your financial documents. Specific eligibility criteria will depend on your company's credit, business finances, and down payment amounts. Each lender may have different requirements and the above guidelines are generally applicable. Always consult with a financial advisor or lender to understand the specific equipment loan eligibility requirements of a lender.

Evaluating Equipment Financing Companies

Tips to Compare Equipment Financing Options

Here are some tips to effectively compare and make the best decision for your equipment financing needs:

  • Prequalify: To understand your potential loan amounts, rates, and repayment terms, work with lenders who allow you to share your financing requirements, revenue, and relevant information without impacting your credit score. Advancepoint Capital, a leading leasing provider for example, provides options which have a direct impact on your approval odds and can boost your chances for a small business loan.
  • Evaluate Financing Amount: Different lenders offer various amounts of financing, ranging from $5,000 to $500,000. Based on your equipment needs, ensure the loan amount suffices.
  • Understand Additional Fees: Some lenders may charge origination fees, late payment fees, prepayment penalties, or other common loan costs. Confirm these details and factor them into your decision-making.
  • Customer Support: Make sure your chosen lender offers excellent customer support. Opt for Advancepoint Capital with a nationwide network that provides you with in-person support at any stage of your business's financial journey to find the best Business financing program. Having a reliable point of contact can make a huge difference if unexpected issues arise. By using these guiding factors, you'll ensure a strategic approach to equipment financing that aligns perfectly with your business's unique circumstances and objectives.

Top Equipment Financing Companies

There are many top-rated companies championing equipment financing in the market today. A few major players in the field include:

  • Midland Equipment Finance: This firm is recognized for their industry-specific expertise in industrial machinery financing, operating across all 50 states.
  • TimePayments: They adapt to a wide range of industries and credit scores, also offering same-day funding. Their core strength lies in enabling both startups and established businesses to secure financing.
  • Bank of America: With a colossal network of 6,269 branches nationwide, Bank of America provides traditional bank equipment financing that could be an ideal choice if your business desires in-person support at any stage of its financial journey. Plus, they host the 'Preferred Rewards for Business program', presenting you with additional perks.
  • Wells Fargo Equipment Financing: Another traditional bank that dispenses equipment financing with competitive terms and sizable financing limits.
  • Balboa Capital: Known for their swift approval process and a vast range of financing options. They have approved loans exceeding $7 billion, largely due to their specialty in quick and convenient loan processing. The Balboa Capital loan service has garnered an A+ rating from the Better Business Bureau (BBB).
  • Crest Capital: Furnishes both equipment loans and lease financing. Be sure to compare these based on your explicit needs, undertake in-depth research, and consult with advisors prior to making a decision. Keep in mind that every business is unique, hence, what works for one might not yield the same outcome for another.

Equipment Financing for Startups and New Businesses

Can Startups Get Equipment Financing?

Yes, startups can get equipment financing, but there might be some additional requirements. Often newcomers face hurdles with traditional lending, such as balboa capital loan, due to their lack of established credit scores and limited financial histories. However, small business equipment financing can offer a pathway to funding, albeit sometimes accompanied by sizable down payments or higher interest rates similar to those more established businesses may receive.

To enhance their chances of approval for equipment financing, startups can take proactive steps including:

  • Providing a robust business plan and forecasted revenue
  • Identifying a creditworthy guarantor, usually the owner, to personally stand surety for the loan

This personal guarantee legally commits the individual to step in and repay outstanding business dues from their personal resources, if necessary. Additionally, companies can consider other options such as business credit cards or unconventional lending methods like hard-money loans, essentially secured against your property.

Online platforms like Advancepoint Capital, as part of their business lending services, have become an increasingly demanded solution. They provide businesses with an opportunity to review and choose the best equipment financing options that suit their specific needs.

Suitable Financing Options for New Businesses

While getting financing might be more challenging for new businesses, there are several suitable options:

  • SBA loans: While they can be difficult to qualify for, Small Business Administration (SBA) loans are a great option due to their low interest rates and long repayment terms. Additionally, the streamlined underwriting and approval process offered by some lenders make SBA loans a valuable option, subject to receipt of required documentation and processing time by your bank.
  • Specialized Equipment Financing: These agreements allow the financier to purchase your required equipment up front, with your business making monthly repayments until full ownership is achieved. The equipment acts as collateral, simplifying the qualification process when compared to traditional business loans.
  • Equipment Lease: Given less stringent underwriting guidelines, new businesses might find it easier to lease equipment rather than buy.
  • Credit Card Financing: If the equipment cost isn't too high and your credit score is above the average (660), it might be feasible to finance with a business credit card. Be sure to look for one offering a 0% introductory APR if possible.
  • Microloans: Non-profit organizations and some online lenders provide microloans, smaller loans tailored to startups or small-scale businesses.
  • Crowdfunding: New businesses, particularly in the creative or technological domains, may find success with crowdfunding on platforms such as Kickstarter or GoFundMe. The choice of the best equipment financing agreements or other financing options will depend on the equipment needs as well as the financial health and structure of the business.
  • Online Marketplace: Platforms like Advancepoint Capital offer a marketplace of lenders, providing businesses the opportunity to compare different loan options all in one place. Funding amount can range between $5,000 to $500,000. Consulting with a financial advisor can help choose the best course.

Cost and Rates in Equipment Financing

Common Costs of Equipment Financing

When contemplating equipment financing, it's crucial to consider not just the interest rate but the overall cost of financing. This includes understanding the combination of explicit costs, potential repair and maintenance requirements, and implicit costs such as taxes, delivery, and installation charges. Here's a detailed breakdown of some common costs:

  • Down Payment: Most equipment financing necessitates a down payment, generally around 15% to 20% of the purchase price.
  • Interest Rate or Factor Rate: These can vary from 6% to 29%, largely determined by your credibility and certain other factors.
  • Taxes and Service Fees: These encapsulate delivery charges, installation, warranty costs, and the standard taxes levied on the purchase.
  • Depreciation: Leasing offers an advantage of reducing upfront expenditure for equipment acquisition and softens the effect of depreciation on your business's profit margin. However, don't forget about the depreciation deductions you might miss out on due to lack of ownership.
  • Origination Fees: Business owners should anticipate origination fees around 3% of the total loan amount.
  • Maintenance Costs: Upon buying the equipment, you typically assume responsibility for its state of repair.
  • Additional Fees: Some loans incorporate application fees. Irrespective of this, remember that application fees might be an admonitory sign as lenders should not impose a fee prior to approving an applicant for financing.

Consider the convenience of the service, too. When choosing an equipment financing loan, compare providers based on the total cost of financing. This incorporates the down payment, interest rate, taxes, potential depreciation deductions, and mandatory fees. Make sure to consider the equity you'll accrue through ownership of the equipment, and the overall convenience offered by the leasing or loan servicing institution.

Understanding Equipment Financing Loan Rates

Understanding loan rates can help you make an informed decision when securing equipment financing. The exact rate you'll receive not only depends on your credit score, time in business, and collateral but also on equity, taxes, and potential compensation elements, especially if you're acting from a specialty niche in a state like North Dakota. The loan rate is also dictated by soft costs like delivery expenses, installation, maintenance, taxes, and other charges:

  • Your Credit Score: A good credit score (usually above 680) can get you lower interest rates.
  • Time in Business: More established businesses with a minimum of one year of operation often qualify for lower rates.
  • Collateral: If the machinery or equipment you're purchasing serves as collateral, you could gain lower rates.
  • Revenue: Businesses with at least $200,000 annual revenue, which signifies greater equity, often open doors to more favorable rates.
  • Taxes: Fees and taxes are soft costs that could be financed into the loan.
  • Loan Term: Longer loan terms often come with higher interest rates due to the extended risk for lenders offering term loans from $5,000 to $250,000 and lines of credit up to $100,000.
  • Economic Conditions: The market and economy status can impact the interest rates offered.

One downside to keep in mind is that funds from such loans can only be used for equipment and some associated soft costs. Furthermore, certain debt instruments like a capital lease often can't be cancelled.

Although equipment financing rates can vary significantly, they typically range from 6% to 20%, with banks generally offering the most competitive rates and terms. Therefore, it's essential to compare all aspects of a loan offering, not just the interest rate, to make the most economical decision for your business. Remember, every business is unique, and what works for one might not work for another. Always consult with a financial advisor or lender to understand the specific requirements of a lender. Before making any decisions, also consider the possibility of same-day funding offered by some providers for businesses that meet their minimum credit score requirement.

Securing Business Equipment from Equipment Financing Companies

Whether you use equipment financing or business loans, the process for securing the best equipment will be similar. With equipment finance companies, the equipment acts as collateral making it generally easier to qualify for compared to traditional business loans. Importantly, the equipment's ownership remains with you at the end of the loan term.

The most pivotal consideration, post qualification, is your ability to cater for the high equipment cost. Trusted, reliable platforms like Advancepoint Capital , renowned for excellent business lending practices, can serve as optimal solutions. Advancepoint Capital, for instance, receives an A+ rating from the Better Business Bureau (BBB) and has cumulatively funded over $750 million in loans within the United States.

Thankfully, with a myriad of traditional and alternative financing options to avail, your business can procure the fabrication equipment it needs. Advancepoint Capital offers loans ranging from $5,000 to $500,000 which can be used for any business expense, including potentially costly equipment repairs, upgrades or leases. Considering options like a loan or equipment financing is vital to ensuring smooth business operations.

Finding the leading equipment financing companies can serve as a turning point. With a partner like AdvancePoint Capital, businesses can qualify for the financing they need, regardless of the business's age, the type of equipment required, or their credit history. Let us, efficiently and effectively, steer you through the complex world of business lending. Contact AdvancePoint Capital today to explore alternative funding options for your heavy equipment needs.

Frequently Asked Questions

Can you get a loan for equipment?

There are many options today for 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 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

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