How to Get an Equipment Loan: What Do You Need to Qualify?
Running a business? We know you're busy. So when that espresso machine goes out and you can’t make drinks for customers, or when the truck breaks down and you can’t make deliveries, you need a solution fast. This is where equipment loans can be a huge help.
What is an equipment loan?
Business Equipment loans are commercial loans that assist small business owners in purchasing, repairing, or replacing equipment. As term loans, they provide funds in a lump sum so you can quickly purchase what you need. The loan is repaid with interest through monthly payments over time. They can be used to buy a wide range of products such as commercial ovens, office furniture, coffee brewers, company vehicles, air units, or construction equipment. You could even use it to purchase real estate through some Small Business Administration (SBA) programs, according to
When you get an equipment loan, the financed equipment will act as collateral to secure it. Financing typically covers 80% - 100% of the cost of the equipment, depending on factors such as the age and type of the equipment, how long it will last, and the lender. This means you could be required to make a downpayment.
You should also consider “soft costs”, which are additional costs for things like taxes, delivery, or installation. Some lenders will allow you to roll these soft costs into your loan. This could look like a lender giving you a loan for 80% of the price of the equipment and an additional 20% for soft costs. Some may finance it all, according to Nerdwallet², leading to a loan that’s 120% of the equipment cost (100% for the equipment plus 20% for soft costs).
But what if you can’t get 100% financing and you don’t have the money for a downpayment? There is another option you could consider.
An equipment lease allows you to get equipment or pieces of equipment without putting any money down. In this case, you don’t own the equipment, instead you lease it from a financial institution. Depending on the situation, you may have the option to buy the equipment when the lease is up, and you may be charged for any damage to the equipment according to Kabbage³. The bank or credit union may cover the cost of maintenance, making future headaches less stressful.
How to Qualify for an Equipment Loan
Since equipment loans use the equipment itself as collateral, they tend to be less risky for the lender, making qualifying quicker and easier than you might think. While all financial institutions have different requirements, there are a few things that most lenders will be looking for.
A Good Credit Score - Lenders want to avoid risk. A score over 670 shows you are a low risk and gives you a good chance of being approved, while 620 is a standard minimum. If your score is below 620, there may still be some options out there, but they could come with a higher interest rate. To increase your chances, check your credit score and work on it before applying.
Experience in the industry - If your business is just getting started, be sure to highlight any experience or knowledge you have in the industry. Having at least 2 to 5 years of experience in your field as a successful business can significantly help your cause when applying. Some lenders may require you to be in business a certain number of years to even be considered.
Strong Business Plan - Helping your lender catch the vision for your business by showing how it functions and where it’s headed allows them to better understand what the money is going toward. Not having a strong business plan can severely impact your chances of getting approved for an equipment loan. Avoid this by preparing a business plan before you go to apply. Need help? Check out our article on how to prepare a business plan.
How to Apply for and Equipment Loan
The application process for an equipment loan is pretty simple - these are the steps you need to take.
- Find the right lender - Where you apply will decide what requirements you will need to meet such as the minimum credit score needed, how much you can apply for, and your interest rate. If you already have an account with a bank or credit union, you could see what they offer. There are also a number of online lenders to consider.
- Decide how to apply - Some lenders will limit the amount you can apply for online vs an in person application. Check for these limits before starting the process and make sure that your method of applying makes sense.
- Gather documents - Obtain and organize all the information your lender might require before going to apply. This includes documents such as:
- An invoice for the equipment - The invoice should be for the total cost of the equipment including any soft costs. This allows the lender to decide on the loan amount.
- Balance Sheet - This shows any assets and liabilities your business currently has.
- Account statements - The lender may need to see personal and business finances to analyze your financial picture.
- Tax Return statements - You might be required to show up to 3 years of tax returns for your business.
- A copy of your business plan - We mentioned it above, but don’t forget to bring a written business plan with you to apply.
- Apply - After you’ve done the research on where, how, and what you need to apply, it’s time to sit down or meet with a lender to fill out the paperwork they need.
- Wait for approval - Equipment loans usually don’t take long to approve or deny. Some lenders will give you an answer in minutes, while others may take a few days.
Reasons to get an Equipment Loan
You might know how to get an equipment loan, but If you’re wondering whether or not your situation calls for getting one, we’re here to help you decide. Here are a few reasons businesses apply for equipment loans:
- When equipment is expensive, but necessary - This could be true at any stage of owning a business - from before you open to years down the road.
- Venturing into a new market - Expanding your business might mean producing a new product or offering a new service - which could require new equipment.
- Your current equipment is old or broken - Even if you take the best care of your equipment, sometimes things just become outdated, wear out, or break. You may need to replace it to provide the best product possible or even for the safety of your employees.
- For a quicker process - If you just don’t have a lot of time to wait on a small business loan, getting an equipment loan may be the better option. Most lenders can turn them around quickly so you can get up and running right away. Keep in mind that this won’t be true for all lenders. For instance, the Small Business Administration (SBA) will likely take more time processing some of their loans - anywhere from a few weeks to possibly months.
- Hold on to working capital - Maybe you have the cash to purchase equipment, but you don’t want to drain your bank accounts. This could mean getting a loan for the equipment just to keep operating cash flow available.
In any of these situations, you always want to analyze if the return outweighs the investment. To do this, calculate the monthly payments for the loan, and then see how much you plan to benefit financially from the equipment. If, for instance, you plan on paying $500 a month for a loan, and the equipment you’re buying/replacing brings in a profit of $1,000 a month, then this is a worthy investment. However, if you were going to pay $1,500 a month for that same equipment, you may need to look into other options.
Apply with Southern Bank
At Southern Bank, we have a number of loan options that work for business owners at any stage. Our approval process on equipment loans is quick and turnaround time is usually less than a day. We also offer competitive rates, with even better rates for long term customers. All this means you could qualify for a loan that fits your budget, on a timeline that meets your needs.
Get the process started by reaching out to one of our local lenders. Once approved, you’ll receive funding to start the exciting task of purchasing new equipment for your growing business. Need anything else? We’ll be here to help.
Disclosures & References:
1 Dan Maticio, Best Equipment Loans and Financing for Small Businesses in 2022, valuepenguin.com, Dec 21, 2022,
2 Randa Kriss, Andrew L. Wang, Ryan Lane Ed., Equipment Financing: Best Companies and Lenders of 2022, Nerdwallet.com, Jan 21, 2022
3 How to Get Equipment Loans: A Guide for Business Owners, Kabbage.com, Accessed 5/15/2022,