Line of Credit
Commercial equipment loans are obtained directly from banks or other financial institutions. In this case, each institution can set its own standards for loan qualifications. Lenders will still require significant documentation about business operations, tax returns, and intended use of funds. These loans are available to businesses with a minimum of $10,000 of monthly revenue and business owners with credit scores of 600 or higher.
Equipment loans can be obtained for loans of up to $5 million dollars. The loan terms are usually 2-5 years depending on the size and purpose of the loan. Shorter repayment periods will have lower interest rates. One of the main benefits of an equipment loan is that it can be funded within 2-5 business days. So once you’ve decided to make an equipment purchase, you can have the funds available to make the purchase within a week. The loans are secured using the equipment as collateral. In the event that you can no longer make the payments, the equipment may be repossessed.
Equipment leases are similar to loans. The key difference between the two types of financing is the ownership of the equipment. With an equipment loan, at the end of the loan term, you own the equipment. For an equipment lease, at the end of the lease term, you have the option of purchasing the equipment at the fair market value of the equipment. The fair market value at the end of the lease is determined by the useful life of the equipment, how much the equipment has worn down over the time you’ve possessed it, and whether newer models are available at the end of the lease term.
Equipment leases are available for equipment of up to $5 million. Because you do not own the equipment, in the event that you can no longer make the payments, the equipment can be repossessed by the owner which is the financing company. Lease payments are generally lower than loan payments because the financing company retains the right to the equipment at the end of the financing term.