Equipment Financing Options for Small Businesses

Your business needs the right equipment to scale, but buying these outright can be expensive. When funds are limited, lenders offer an opportunity to buy what you need to thrive and grow without exhausting your working capital. In this article, we explore the different equipment financing options available to small businesses.

Loan or Lease?

Before we look at the potential funding sources for your equipment, let’s differentiate a loan from a lease — two terms that are often mistaken for each other.

Equipment Loan Equipment Lease
Typically requires a 20% down payment Low to zero down payment required
Only 80% of the equipment’s price is loanable Can finance 100% of the item, plus up to 25% of soft costs*
You own the equipment from day one The lender technically owns the equipment
The collateral is the item you purchase using the loan You can return the equipment at the end of the lease period or decide to purchase it for a lower amount

*taxes and delivery fees

A lease is recommended for businesses with little to zero available capital or intend to use the equipment for a limited time. However, if you have the extra money and long-term plans for the equipment, it makes sense to take out a loan.

Common Equipment Financing Options

There are many reasons why small businesses would consider equipment financing. These include adding a new machine to support an expansion, introducing a new product, replacing damaged machines, and updating old equipment. Here are some of the equipment financing options available to small businesses.

Small Business Administration 7(a) Loan

This government-provided loan helps entrepreneurs get the capital they need to start a business, refinance debt, and purchase equipment. To be eligible for an SBA 7(a) loan, your business should meet the following:

  • Classified as a “small business” by the SBA and operating for profit
  • Can justify the need for a loan
  • Has no delinquent debt accounts with the US government

You can repay an SBA 7(a) loan monthly with fixed interest, and the loanable amount can go as high as $5 million.

SBA Microloan

If your financial need is under $50,000, you can apply for the SBA’s microloan program. The proceeds from this loan can be used as working capital or to buy equipment, supplies, and furniture. They cannot be used to buy real estate or to pay off debt. The maximum repayment period for an SBA microloan is six years, with interest rates ranging from 8 to 13%.

Business Lines of Credit

A business line of credit enables you to finance your equipment, pay off bills and debt, and expand your capacity up to your predetermined credit limit. This financing option for small businesses is ideal for seasonal spending and short-term needs. To be approved for a business line of credit from a private lender, you need to have a strong credit and revenue background.

Private Equipment Financing Providers

There are many private lenders that provide flexible and customized equipment financing options for small businesses. Most of these are easier to qualify for than the aforementioned options. Charter Capital, one of the leading equipment financing providers in the country, offers several types of financial products, with loan and lease amounts ranging from $10,000 to $1 million. If you need money to buy commercial, medical, industrial, technology, audio/visual, or heavy equipment, Charter Capital makes it possible for small businesses to thrive.

Scale Your Small Business With Charter Capital

Charter Capital has been providing equipment financing support to businesses of any type and size since 1977. We customize our financing structures according to your unique needs and are committed to providing high-quality service that will leave you feeling successful and happy. To learn more about the different equipment financing options we offer for small businesses, don’t hesitate to get in touch with us.