Small manufacturing companies, machine shops, and other small businesses rely on equipment like milling machines, lathes, forklifts, and other expensive equipment to service their customers and meet their business needs. Industrial equipment financing is a specialized way for either leasing or purchasing the equipment they need. Keep reading to learn more about this type of equipment financing and equipment leasing.
What is industrial equipment financing?
Industrial equipment financing is a way to finance the purchase, or lease, of industrial equipment a construction company, manufacturing company, a transportation or waste management company might use to do business. This could include equipment like milling machines, lathes, presses, heavy construction equipment, or vehicles.
Many times the equipment dealers offer leasing services or have lenders they recommend that make the purchasing process streamlined and easy. With that being said, there are other options outside of what the deal might offer to financing your industrial equipment.
How do you finance industrial equipment?
Financing equipment is pretty straightforward and relatively easy for businesses that have a healthy business and can demonstrate the ability to make periodic payments. This also applies to an equipment lease. The key is to demonstrate that your business not only has the ability to make periodic payments, but that you have a track record of doing so.
Many industrial equipment financing relies heavily on your personal credit history. In other words, the quality of your offer (or even an offer at all) could depend on the strength of your personal credit score. Although a strong personal credit score might not guarantee you financing for your heavy equipment loan, it will provide you with a broader selection of offers, repayment terms, and upfront costs and interest rates than a borrower with bad credit will find.
Fortunately, in addition to dealer financing, there are a number of financial solutions when purchasing this type of business equipment:
- An equipment finance company
- Online lenders
- The SBA
- A general financing company
- A traditional bank
Depending on the lender or financial institution you choose (and the types of equipment being financed), origination fees, a down payment, and whether or not you are purchasing new or used equipment can be factors that will contribute to credit approval decisions.
Financing used vs. new industrial equipment
There are many factors that go into a decision to purchase new or used industrial equipment. Although there’s always an argument to be made to purchase new equipment, depending on the nature of the equipment being purchased, it’s expected longevity, the market value, and even the expected maintenance costs, it can still make sense to purchase (and even finance) used industrial equipment.
Because industrial equipment is inherently expensive, many businesses rely on financing to purchase the equipment they need. Fortunately, although there may be some financing companies that don’t offer industrial equipment loans on used equipment, there are those that do. In fact, some lenders even specialize in used equipment financing.
In some cases, the cost of financing could be higher if you’re purchasing used equipment, but if the equipment is less than 10 years old the additional cost will be minimal. On the other hand, the costs can go up quite a bit the older the equipment gets. The better your credit profile, the better, when purchasing used equipment.
What’s more, the older the equipment you’re considering, the less likely you’ll be able to get a lease on that equipment, if you decide you don’t want to finance a purchase.
How long can you finance used equipment?
The expected longevity (of life cycle) of the equipment being purchased will play a factor in loan terms you can expect from a number of equipment financing solutions. Typical terms will be 2-7 years, with some equipment up to 10 years. You should expect the older the equipment being financed to have shorter loan terms.
Industrial equipment financing options
In addition to some of the other options available to you, TimePayment and LendSpark are both lenders that specialize in equipment financing.
FUNDING AMOUNT N/A
COST .0219 – .0626 factor rate, depending on your credit profile and length of lease term.
REPAYMENT TERMS N/A
FUNDING SPEED As fast as a few minutes depending on funding amount and equipment delivery.
- Pros and Cons
- Our Recommendation
Ability to finance a wide range of equipment to various business credit profiles. This includes start ups and perfect credit isn’t needed. The application process is simple and requests under $10,000 can be approved in just seconds.
FUNDING AMOUNT Up to $2 million
COST 6% – 35% APR
REPAYMENT TERMS Monthly payments up to 60 months
FUNDING SPEED 1 – 2 weeks
- Pros and Cons
- Our Recommendation
High funding amounts and potentially low interest rates. Can be used with a startup.
Slower funding speeds than other equipment financing options.
What it takes to qualify for industrial equipment financing
Because your industrial equipment being financed will likely be fully collateralized (the equipment your purchasing will act as collateral), it is sometimes easier to qualify for this type of financing over a traditional small business loan. You should expect the lender, or finance company, to require:
- At least a year in business
- $50,000 (preferably more) in annual revenue
- A personal credit score of 650 or better (but some lenders will accept a lower score if you can show cash flow for 3-6 months that would support the loan, or lease, payment
Depending on the lender, you may also be required to provide:
- Financial statements
- Cash flow reports
- Bank statements
- An up-to-date balance sheet
- And your current business tax returns
Financing the industrial equipment you need can be a good strategy to free up cash flow you can use in other areas of your business.
How to apply for industrial equipment financing
The application process for an industrial equipment loan will largely depend on the lender you choose. It can be as simple as a quick online application with an online lender, like Nav, or other online financing company, or could include a more complicated application and underwriting process with a traditional bank, financing company, or the SBA.
The company you choose can also make a difference in how quickly your loan, or lease, will get funded. Though typically equipment financing doesn’t take as long as a traditional small business loan—even if you choose to go with a more traditional lender.
Equipment financing or leasing is a good option to acquire the equipment you need. It’s also a good way for many small businesses to leverage borrowed capital with strategic financing that allows business owners to have access to cash for other things that are more difficult to finance.