Equipment Loans For Startup Business

Written by Peach Capital

May 15, 2013

How to finance Equipment Loans For startup business

Learn how equipment loans can help your start up business and how to receive the right equipment loans program for your business needs. When small business owners are looking to Finance computers, vehicles, TV’s, and all sorts of other equipment you use in the course of business they Don’t often look into just getting an equipment loan for start up to acquire the equipment instead of using your credit lines, loans, or free cash for equipment.

Equipment Loan

are the easiest type of funding to obtain, because the banks consider the equipment to be collateral for the loan.

Equipment Loans financing

typically involves lenders writing business loans that are secured by pieces of equipment rather than real estate. Lenders do not generally write

equipment loans

for consumers although in some states loans used to finance solar panels are available to both businesses and consumers. Equipment loans are often insured by government entities that are keen to promote financing opportunities for start-up businesses.

Loan Terms

When lenders write loans secured by equipment, the amount financed cannot exceed the collateral value. If the borrower defaults on the loan, the lender can claim ownership of the collateral and sell it to recoup the outstanding debt. Generally, equipment becomes obsolete over the course of time, so loan terms cannot exceed the useful life of the financed equipment. In some instances, the state and federal governments insure lenders against losses associated with borrower default. Consequently, on government-backed loans the lenders are less strict on loan terms.


Equipment loans

are common in the medical field as hospitals and local practitioners use equipment financing to avoid paying for expensive equipment in one lump sum. Some lenders enable doctors and dentists to use one loan to finance a variety of different equipment. Borrowers with degrees in the medical field tend to have higher earning potential than people working in other fields, so lenders are more inclined to provide equipment loans to start-up medical professionals than people in other industries.


You can finance a variety of different types of equipment, but long-term loans are generally only available for heavy machinery. Loans for computers and telecommunications-related expenses are normally capped at two years because advances in technology mean these items become obsolete relatively quickly. In some states, the state government insures loans for businesses in certain industries to try and encourage job creation. A lender may approve a loan using a type of equipment in a state where the government insures loans but not finance the same equipment in a different state where the government does not insure such loans.


The federal government and several state governments offer tax incentives to business owners and homeowners who install solar panels. The installation costs are significant, and in many instances people lack sufficient home equity to finance the installations. Therefore, lenders are encouraged to offer long-term, low interest rate equipment loans that people can use to purchase and pay for the installation of solar panels. Other types of loans tied to energy-efficient equipment are also available in some states.

Here is what you should look at before you start looking for your next equipment loan

1 Determine the equipment you would like to purchase. Request documentation on pricing, both upfront and maintenance, over the next 5 to 10 years.
2 Develop a forecast for paying off the cost of the equipment as well as the ROI (return on investment) over the next 5 to 10 years. In general, the ROI is calculated as ROI = (Payback – Investment)/Investment) multiplied by 100. The company you are purchasing the equipment from might also have these numbers readily available, but you will still need to verify their assumptions.

3 Contact three business bankers. Request information on business financing options. Set up a meeting to get specific information on the programs available.
4 Request information about conditional sales agreements. Essentially, you are selling the equipment to the bank and they are leasing it back to you. The lease functions like a loan. For tax and accounting purposes you own the equipment and there’s an automatic option (expectation) to buy at the end of the lease term. A down payment is typically not required.
5 Request financing from the company selling the equipment. Usually equipment manufacturers work with capital leasing specialist who are asked to help customers find creative ways to purchase equipment. Your credit and/or ability to generate steady cash flows from the equipment will be the primary determinants of the rate of interest on the financing.


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