An equipment loan is capital offered to businesses that are buying new equipment or replacing current equipment. Traditional sources of equipment loans, such as banks, typically require a specific purpose and impose strict limits on usage. From alternative sources, an equipment loan may be a little more flexible regarding how it is spent. An equipment loan can offer fixed or variable rates, flexible repayment terms, variable payment frequency, and possible tax benefits. An equipment loan allows companies to retain and build equity.
Most banks and other traditional sources often write equipment loans for terms of up to seven years. There is usually a documentation fee when the loan is initiated. Equipment loans from banks will vary in terms of borrowing amounts. The amount of the loan depends on the cost of the equipment or fixed asset you’re purchasing or refinancing.
Many small business owners find alternative funding methods to be ideal for equipment loan needs. Because they are less demanding than traditional loans, alternative-funding sources can help a business owner get the equipment more quickly. In addition, with an alternative funding source, an equipment loan is not always restricted to the costs of the equipment. This means that a small business owner can include the anticipated costs for other aspects of obtaining new equipment, like training, transportation, or ongoing maintenance.
While there are certainly pros and cons to using either a traditional or an alternative source of funding for an equipment loan, there is no question that an equipment loan can certainly benefit the efforts of a small business owner.