How Long Can You Finance Equipment?

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Reviewed by Matt Pelkey
• 5 minute read
Shop owner standing in his shop surrounded by equipment

Running a small business often means needing to purchase essential pieces of equipment — from heavy-duty excavators to everyday office furniture and supplies. However, business equipment can come with a hefty price tag. You may be considering using equipment financing to purchase or replace your equipment without breaking the bank. Let’s explore some of the questions you may have about equipment financing and how it can impact your business.

How Long Can You Finance Equipment?

The term length of equipment financing can depend on many factors. Some of the main factors that determine how long you can finance equipment are the lender’s policies, the type of equipment you want to buy, and your business’s financial standing. This means that there’s no one answer, but a large range that fits the different needs and circumstances.

In general, equipment financing terms can last anywhere from one to 10 years. When looking to buy equipment, you should think about the life of the equipment. Consider whether it’s new equipment or if it’s used and what type of equipment it is. Used equipment is often cheaper, but it can have a shorter lifespan due to the existing wear and tear.

The term length of your financing is often tied to the expected longevity of the equipment. When choosing a financing option be sure to consider all these factors to ensure it fits your business needs.

What Is the Average Term of an Equipment Loan?

The term length of any equipment loan can vary, but typically looks to balance the financial burden of the monthly payments with the expected lifespan of the equipment. It finds a middle ground between the borrower’s capacity to pay and the usability of the equipment.

This balance is important because it helps ensure that borrowers aren’t paying for equipment that is no longer useful. However, the term lengths available depend on factors such as the type of equipment and the business’s financial health (which can include things like their business credit score or annual revenue).

How Long Does It Take to Get an Equipment Loan Approved?

The application process and time to approval can vary significantly from lender to lender. It can take as little as one day and up to several weeks. Online lenders can often offer quicker approval times while traditional lenders such as banks and credit unions may take longer.

What Is Equipment Financing?

Equipment financing is a term that typically refers to one of two main types of funding designed specifically for business equipment needs.

Equipment loan. This is a secured loan option where the borrower receives a lump sum of money in order to purchase equipment. They then repay the loan over a set period of time.

Equipment leasing. With this type of financing, the lender owns the equipment and then leases it out. The borrower may have the option of purchasing the equipment at the end of the lease agreement.

The different term lengths offered by lenders allow business owners to get the equipment they need while balancing the costs.

How Does Equipment Financing Work?

Equipment loans. An equipment loan is a type of small business loan that enables companies to make equipment purchases without shouldering the full cost up front. Typically, you’ll apply with a lender, who will deposit the money into your business bank account. You’ll then purchase the equipment and repay the loan in installments over time. The loan term and loan amount will be determined by several factors such as the type of equipment, the small business owner’s credit history and the overall financial health of your business.

A key aspect of equipment loans is that the equipment will generally act as collateral. This means if you fail to repay the loan, the lender can seize and sell the equipment to recoup their losses. A secured loan can sometimes come with better loan terms, such as lower interest rates and longer terms. You may also be required to make a personal guarantee and a down payment in order to be approved. Larger down payments can help lower your monthly payments.

Equipment leases. Another popular equipment financing option is equipment leasing. With this type of agreement you would be renting the equipment from the lender for a set monthly rate, though you may have the option of purchasing the equipment at the end of the lease. Similarly to an equipment loan, the lease term will be determined by the type of equipment and your business’s finances.

Where Do I Find Equipment Financing?

If you’re looking for equipment financing you have several options.

Traditional banks and credit unions. When you start looking for business financing, your first thought may be to head to your local bank. These financial institutions can offer equipment financing with competitive rates and good terms. However, banks may also have strict eligibility requirements and the approval process can take a longer amount of time.

Online lenders. If you’re looking for a faster process an online lender may be a good option. They also typically have less stringent requirements — though you may see higher interest rates. Some online lenders don’t offer a specific form of equipment financing but they often offer short-term business loans and lines of credit that can be used for equipment purchases.

Equipment dealers and manufacturers. If you’re shopping for equipment, you may notice that the dealer offers financing options. This can be convenient as it allows you to select and finance equipment all in one place, but be sure to compare their rates and terms to ensure it fits your business needs.

Government programs. The Small Business Administration (SBA) backs loans offered by participating lenders. SBA loans are known for their favorable terms such as small down payments, lower interest rates and longer repayment terms. However, the application process can be long and approval can be difficult to obtain.

What Kind of Equipment Can I Use Financing For?

Equipment financing is versatile and accommodates most business needs. Whether you need heavy equipment or essential office gear such as furniture or computers, this form of financing is designed to cover most tangible assets.

This flexibility is a major benefit of these financing options. It’s not just about the big heavy machinery or high-tech equipment — even the more commonplace items that help you run your day-to-day business operations can be financed. This makes equipment financing a good type of business loan for those looking to invest in growth without the upfront financial burden.

DISCLAIMER: This content is for informational purposes only. OnDeck and its affiliates do not provide financial, legal, tax or accounting advice.