Best equipment loans of November 2024
If you don’t qualify for a business equipment loan, a personal loan can help you finance the equipment you need.
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Lindsay Frankel has been in personal finance for over eight years. Her work has been featured by MSN, CNN, FinanceBuzz, and The Balance.
Updated October 1, 2024, 2:45 PM EDT
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Since 2011, Meredith Mangan has helped steer content creation in mortgages and loans, insurance, credit cards, and investing for major finance verticals, including Investopedia and The Balance.
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If you have a business in need of equipment you have options. It's just a matter of what your business can qualify for and afford. Traditional bank financing and the Small Business Administration's 7(a) loan programs are worth exploring if you have a few years in business and a down payment. If you’re a new business owner or can't cover a down payment, an unsecured personal loan may fit the bill.
We've reviewed the best personal loans for equipment financing, which can make sense if you can't qualify for a traditional business loan. We also explore what to consider before you get an equipment loan, how an equipment loan can impact your business and personal finances, and other ways to finance business equipment.
What is an equipment loan?
While an equipment loan may be any type of loan product used to purchase business equipment, the term typically refers to a collateralized business term loan secured by a business asset. The Small Business Administration (SBA) offers a range of loans to new and established businesses that may be used to cover equipment needs. Secured loans may also be available through banks as well.
But if you can’t qualify for a business loan due to other requirements, there are other options. Many lenders offer personal loans that can be used to purchase business equipment. You can qualify for a personal loan based on your income and credit score, and collateral is typically not required. A personal loan provides a lump sum that you can repay in fixed monthly payments over several years, and won’t require a down payment either.
Best personal loans for equipment
Some of the best personal loans can be used for a variety of business purchases, including equipment. Here are our top picks for the best personal loans for equipment financing from lenders that offer lending for business equipment purchases.
Fox Business does not make or arrange loans.
Methodology
We evaluated the best personal loan lenders for equipment loans based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Our team of experts gathered information from each lender’s website, customer service department, directly from our partners, and via email support. Each data point was verified by a third party to make sure it was accurate and up to date.
Read our full lender rating methodology for more information.
How equipment financing loans work
You can use an equipment loan to pay for almost any non-real estate business asset. The loan amount is typically received upfront to purchase the asset, then paid back in installments with interest over a period of years. When evaluating equipment financing options, consider the following:
- Is the loan secured?
- Is a down payment required?
- Is there a time-in-business requirement? Does my business meet it?
- Is there a minimum or maximum annual revenue requirement? Does my business meet it?
- Am I eligible for an SBA loan?
- Does the lender offer competitive rates?
Most traditional business loans are secured by the equipment you're using the loan to purchase. In other words, if you fail to repay the loan, the lender can seize the equipment. But personal loans used for business expenses are usually not. Because an asset provides recourse for the lender in the event of nonpayment, secured equipment loans often come with lower interest rates and fees than unsecured loans.
While some lenders offer equipment loans without upfront payment, others require a down payment, such as 20% of the cost of the equipment. Furthermore, business loans can come with time-in-business and revenue requirements that may be prohibitive for some business owners. For example, a business equipment loan may require two years in business, making new startup businesses ineligible for this type of financing. The SBA, however, offers some small business loans, such as SBA microloans up to $50,000, that are available to new businesses. Personal loans may also be available to new businesses and startups.
Types of equipment loans
There are a few loan options to choose from if you need financing to purchase a piece of equipment.
Traditional business loan for equipment
When you apply for a traditional business equipment loan, the lender may review your personal credit history in addition to your business credit history. Other factors that may influence the annual percentage rate (APR) you’re offered include your time in business, your annual revenue, and the cost of the equipment you’re purchasing. The lender may also review your business financials to make sure your projected cash flow is enough to cover your monthly payments.
Good to know
If you’re using a personal loan to finance equipment, you’ll need to provide details of your personal finances, not your business’s, for approval.
If you’re approved for a traditional business loan, you may be required to make a down payment. You’ll then make monthly payments, typically over the course of three to seven years. While you’re making payments, the lender will often have a lien that allows it to repossess the equipment if you fail to repay, but once you’ve paid off the entire balance with interest, you’ll own the equipment outright.
Personal loan for equipment
A personal equipment loan works a little differently. Since personal loans are usually unsecured, the lender will carefully evaluate your credit history, outstanding debt, and income to gauge whether you’ll be able to repay the loan. If you fail to make payments on time, your personal credit score will be impacted. However, you’ll face fewer requirements when accessing a personal loan.
A down payment won’t be required, but an origination fee may be taken out of the funds you receive. You typically repay a personal loan over one to seven years. The average APR for two-year loans is 12.35%, according to the Federal Reserve. But the rate you get will depend on your credit, income, and current debt, and could be much higher.
Learn more:
Equipment financing vs. equipment leasing
Equipment leasing is another option for obtaining and using equipment that may be more appropriate than financing a new purchase, depending on your business needs. With this route, the lender retains ownership of the equipment for the entirety of the lease and your business pays for the privilege of using it. What happens at the end of the lease agreement depends on the type of lease. With a capital lease, you’ll make regular payments over the term of the lease, but own the equipment outright at the end of the lease term. An operating lease, meanwhile, requires you to return the equipment to the leasing company at the end of the lease term.
Note
With a capital lease, the lessee (the corporation leasing the equipment) is treated as the owner throughout the lease term for accounting purposes.
Equipment leases don’t typically require a down payment and may cost less monthly for the duration of the term. A lease might make sense if you don’t expect the equipment to outlast the lease term. A capital lease may result in your business spending more over time to purchase the equipment, while an operating lease will require you to lease new equipment once the current term has ended.
Pros and cons of equipment financing with a personal loan
There are some advantages and disadvantages to using a personal loan to finance business equipment.
Pros
- Fast funding: Some personal loan lenders are able to transfer the loan funds into your bank account the same day or next business day after you’re approved.
- Few requirements: While most lenders require you to have a good credit score (a FICO score above 670) and sufficient income to manage your debts, there are no business requirements associated with a personal loan. Your business can be brand new and lack credit history, but if your personal credit and finances are strong, you could be approved for a low-rate loan for equipment.
- Fewer upfront costs: Most personal loans don’t require a down payment. Some lenders charge origination fees that are deducted upfront from the loan funds, however.
- Flexibility: Personal loans don’t require collateral and can be used for almost any purpose, so unless your lender prohibits it, you can use a personal loan to cover other business expenses you may have in addition to your equipment needs.
Related: What is furniture financing?
Cons
- Risk of credit impact: Most personal loan lenders report your payments to the three major credit bureaus. If your business fails or you lack enough cash flow to make a payment, you’ll risk derogatory marks on your credit report, a reduced credit score, and possible collection attempts.
- Rates may be higher: Personal loan rates tend to be higher than secured business loan rates or other secured products, like home equity loans. That said, if you have an excellent personal credit score and a young business, you may actually get a lower rate with a personal loan. Equipment loan rates may be as high as 30% for some businesses, while personal loan rates may be as low as 6.40% for eligible borrowers.
- Loan amounts may be insufficient: Personal loan amounts typically top out at $50,000, depending on your finances and ability to make payments, though some lenders offer more. If you need several hundred thousand to finance business equipment, you may need to find another lending solution.
Where to get equipment financing
Before you borrow to fund your equipment purchase, look into grant programs for small businesses. According to the Small Business Administration, the first-year failure rate for small businesses is 18%, which makes it risky to start a business with borrowed funds based on your personal credit.
If your savings won’t cover your startup costs, apply for any grants you may be eligible for. Crowdfunding is another option for getting your business off the ground without taking out an equipment loan.
If your business is already up and running, check to see if you’re eligible for a business equipment loan through the SBA or a bank. If you don’t meet the requirements, consider a personal loan. Just make sure you can cover the monthly payments with other income if your business struggles.
Personal loans are available at banks, credit unions, and online lenders. Before choosing a loan, research lender reputation and eligibility requirements. You may want to prequalify with a few lenders before you start the application process, which allows you to get an estimated rate with only a soft credit check. Prequalification is not an offer of credit, however, and when you proceed to a formal application, the lender will conduct a hard credit inquiry that can ding your score (though the impact is usually temporary).
Learn more: Where can I get a personal loan?
Tip
When comparing lender rates, refer to the APR, which represents the total annual cost of borrowing, including the interest rate and any upfront fees.
Best equipment loans FAQ
Are there tax benefits to equipment financing?
Yes. If you take out a business loan to finance equipment, the interest payments are usually tax deductible as a business expense. If you choose to use an operating lease to obtain equipment, each payment will likely be deductible as rent. If you lease equipment with a capital lease, you can generally deduct the interest paid, though some businesses may face limits.
What happens if you default on an equipment loan?
If you default on a secured business equipment loan, the lender could repossess the equipment. Depending on the terms of the loan, the lender may also be able to seize other business assets or hold you personally responsible for repayment. If you default on a personal loan used to purchase equipment, you’ll risk damaging your personal credit score.
How long does it take to get funds for an equipment loan?
Business equipment loans through banks and personal loans for purchasing business equipment can be quick to obtain. Personal loan funds may be distributed as soon as the same day or following business day. Loans backed by the Small Business Administration take longer to fund, however, and could take months.
What are good rates and terms for equipment financing?
Rates and terms vary depending on several factors, but some businesses may be able to access equipment loan rates as low as 5%. If you have an excellent personal credit score, you can also use a personal loan to pay for business equipment, and you can expect rates as low as around 7%. With both types of financing, terms of up to seven years are available.
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