Small Business Equipment Financing: A Loan and Lease Guide for Retailers

For many new businesses, securing loans is an essential first step. Most owners don’t have the capital to get everything started. Retail leases, advertising, and hiring an entire team are all expensive. 

And many retailers have yet another extensive cost: equipment. These loans can be as small as a few thousand dollars or as large as several million. Whether it’s an industrial copier, new combine harvester, large window display, a fleet of utility vehicles, or brand new espresso machine, it’s important to find small business equipment financing to get a new business off the ground or expand/improve an existing business.

Equipment Loan or Lease for Small Businesses

Equipment loans are granted to small businesses in need of new equipment or replacement of existing equipment. Such equipment might be needed to produce, process, manufacture, or distribute a certain product. These could be certain pieces of machinery, ovens or refrigeration, computer systems, copiers/printers, or commercial vehicles, to name a few. These items are all essential for the business to operate well, so securing a loan or lease is absolutely imperative in many cases.

Cases When Businesses Need Equipment Financing

Without stating the obvious too much here, here are some basic cases where a business might need to finance some new equipment.

  1. Your equipment broke. If something is completely out of commission you’ll need to replace it as soon as possible.
  2. It’s just dated. Perhaps the industry has changed and, even though it might work just fine, the equipment that you have just isn’t quite cutting it.
  3. It’s too expensive to keep repairing. It’s almost always cheaper in the moment to pay for a repair than it is to buy a replacement, but it’s important to consider how much repairs will cost long-term. If you are getting a piece of equipment reparied several times a year, replacing the product will pay itself off quickly.
  4. New equipment will be tax-deductible. A purchase of new equipment for your business can be written off on your taxes as a business expense. Under a section 179 deduction, businesses can write off the entire expense so long as it’s under $500,000.
  5. You need to keep cash available. Many businesses may have the capital to pay for the entirety of a new piece of equipment, but would like to keep working capital for other business expenses. In this case, it’s better to pay interest on a loan than save money and have no available capital.

See also: What is Equipment Inventory Management?

Equipment Loans Versus Equipment Leases

The major difference here is a matter of who owns the equipment. A loan, or financing, is something allows businesses to purchase the equipment over a long period of time. A lease allows businesses to rent the equipment over a certain period.

What are the conditions of an equipment loan?

  • A bank or other lender will pay the vast majority of the price for the equipment.
  • Usually, you’ll be on the hook for a down payment and then interest over the time of your repayment.
  • The equipment will be yours once the loan is paid in full.
  • While this might be advantageous in the long run, it’s risky because you’re stuck with the equipment, even if it doesn’t work out long-term.

What are the conditions of an equipment lease?

  • Under an equipment lease, the upfront costs will be much less.
  • You won’t need to put up collateral or any down payments.
  • And because it’s a rental, the application process is also much easier.
  • Plus, you don’t need to worry about repairs – the leasing company takes care of everything.
  • However, if you have a long-term lease, you’ll pay a premium by the end of the lease. If you end up having the equipment for a long period of time, a loan will probably be a much cheaper option.

How to Get Financing for SMB Equipment

Equipment financing is easier to get than some other types of loans because the equipment itself can be used as collateral for the loan. A bank or other lender can simply take the equipment back if a business ever defaults on the loan. This is particularly advantageous for startups that don’t have enough history to have established business credit.

Still, good personal and business credit is important. Like any loan, lenders will look at your history before offering a loan for business equipment. If your business has a reliable record of sales over a given period, you might still qualify with less than ideal credit.

You might also pursue online lenders for these loans. There are more alternative lenders than ever and businesses should take advantage of the new opportunities. They are typically more friendly in extending lines of credit and don’t come with high interest rates attached.

  1. Show up to a loan application meeting with several key things in mind:
  2. Plan ahead to make positive changes to your credit score however possible.
  3. Have both your business and personal credit history prepared.
  4. Bring a great business plan to show how you’ll use the loan and how it will improve your sales.
  5. Add a personal resume to show lenders what kind of character and background you have.
  6. Put together cash flow statements to show that you know where your money comes in and where it goes out.

Some of the Benefits of Small Business Equipment Financing

Aside from the obvious benefits of small businesses financing new equipment – allowing them to stay in or improve their operation – there are some added perks of the process:

  1. Equipment financing is easier to secure than other types of small business loans – SMBs also generally get the answer on the loan application more quickly. Nontraditional lenders, like online financing options, are typically faster yet. And because the loans are backed by the equipment itself, new and existing businesses are more likely to secure the financing.
  2. They offer flexible payments and lower interest rates – If your business has strong seasonal sales swings you may want to structure your payment schedule accordingly to keep your available capital steady. Some also offer interest-free deferment for a given period after the loan is secured. These loans also usually come with lower interest rates than other business loans.
  3. Equipment loans and leases are tax deductible – Whatever your spend annually on new equipment can be written off on your business’s taxes as a business expense. Just be sure to talk to your bank or other lenders to confirm that this is the case so that all taxes are filed correctly.
  4. Soft costs are usually covered – These include extra fees, delivery premiums, or installations charges. Some financing options will waive these costs as an incentive to use their services. These smaller costs can add up quickly so make sure that you look into any favorable conditions such as these.

For more business advice, check out our other blog posts. KORONA POS is here to help small businesses in any way we can. To learn more about how our point of sale software can help you grow your small business, click below.

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About the Author

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Michael Chalberg

Michael has long focused his writing on the world of retail and small businesses. He''s been a part of the KORONA POS team since 2018 and loves helping entrepreneurs find ways to adapt and succeed. In his spare time, you'll likely find him hiking somewhere in the Southwest.

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