How are Equipment Business Loans Calculated?
Several factors go into calculating equipment or business loans. Let’s break down the individual parts of the loan to understand better how lenders look at your request.
Compare your options with our equipment loan calculator.
Equipment Loan Amount
The first and most obvious is, how much does the equipment cost? Equipment loans can purchase an extensive range of items – from bulldozers to the kitchen sink. The price range is just as wide. Such loans start at around $10k and can go as high as $5 million per piece of equipment. Knowing the loan amount you need is the first step in securing financing.
Interest Rate
Once you know the purchase price for the equipment, you need to know the interest rate. Interest rates can vary depending on your credit score and the strength of your business. Typically speaking, the higher your credit score, the lower the rate; a low credit score likely means higher rates.
The range is anywhere from 3.5% – 20%. A lower interest rate means a lower payment and lower total interest. One advantage of an equipment loan over other small business loans is that you can use the equipment as collateral to help bring your rate down.
Loan Term
A loan term is simply how long you have to repay the loan and your monthly payment during that period. Most financing terms are between 12 and 72 months. Lenders will consider your business needs and what you can afford in monthly payments when determining the length of the loan.
At its simplest, the payment would be the principal (amount borrowed) times the interest rate divided by the number of months in the loan term. But with APRs, compounding interest makes the formula more complex to arrive at a full amortized payment. This is where the equipment loan calculator is super helpful – it automatically factors in the APR for a more accurate estimate of your monthly payments.
What is the Total Cost of an Equipment Loan?
Once you know the loan amount, interest rate, and loan term, you can calculate the total cost of the business loan. For example, a $500,000 loan with 8% interest over five years would total around $609,791. There are other considerations, though.
Some business loans come with an origination fee or other fees. Also, you need to know whether you can make a down payment. With equipment loans, it’s possible to finance 100% of the cost, but a down payment could help bring lower your interest rate, monthly payment, and total interest paid over the life of the loan.
How Accurate is the Loan Calculator?
Our equipment loan calculator gives you an estimated financing cost. We work with multiple lenders who finance equipment loans, so the estimate is based on real-world data. However, the actual cost of your loan will come down to specifics like your credit score, lender fees, and additional terms. Still, the calculator helps you compare financing options and determine what you can afford.
How Do I Use the Calculator?
Move the toggle to change the loan amount and watch it calculate your payment for different loan terms.
Frequently Asked Questions
We work with a lot of companies on securing equipment loans. Here are some of the frequent questions we hear.
How hard is it to get approved for an equipment loan?
Fortunately, equipment loans have one of the highest approval rates of any funding type in the market. Online lenders and local banks like Wells Fargo and Bank of America are more likely to approve equipment loans. Around 80% of businesses applying for this type of loan are approved. Approved companies typically need to have the following:
- A credit score of 600 or greater.
- A minimum of one year in business.
- At least $250k in annual revenue.
What can I use an equipment loan to purchase?
Businesses can use an equipment loan to purchase new or used equipment. They are not limited to any specific industry. Some types of equipment you can acquire with a loan include:
- Computers, printers, and computer accessories.
- Copiers.
- Desks and other office furniture.
- Construction (heavy) equipment such as tractors, bulldozers, etc.
- Vehicles.
- Medical equipment.
- Landscaping equipment.
- Dog grooming equipment.
- Salon or beauty spa equipment.
- Restaurant equipment such as industrial ovens, freezers, fridges, etc.
If you want to know if your next intended purchase is eligible for this loan, ask us today.
What industries can get equipment loans?
These types of loans are not limited to any specific industries. However, loan amounts can vary depending on your industry. We work with industry-specific lenders to help borrowers secure the best possible loan.
How much can I borrow?
The amount you can finance and the loan offers you get depend on several factors. The amount of the equipment, its lifetime value, whether it’s new or used, and its intended use all factor into how much you can borrow. Also, your credit score and business revenue significantly impact your borrowing limits.
Is it better to finance or lease equipment?
This depends on your business needs and the life of the equipment. Generally, a loan would be best if you plan to use the equipment for three years or more. Some businesses like the lower commitment of a lease, and others prefer to own their equipment outright at the end of the financing period.
How long can you finance equipment?
Most loans have terms between one and six years. The exact length of the loan will depend on how much you’re funding and how much you can afford to pay based on your revenue. If the new purchase helps boost your revenue, factor the projected growth into your budget. Just be careful not to overestimate the increase, or you could end up with a high payment you can’t afford. We work with businesses every day to help them determine their options.
How much do I need for a down payment?
Some small businesses can get a loan with little to no down payment. Certain loans, like construction equipment, might require a down payment. If you’re looking to purchase but don’t know if you can afford a down payment, we can help you find the right loan for your needs.
Are equipment loans tax deductible?
In most cases, the interest paid on equipment loans is tax deductible, but it is not guaranteed. Before committing to a loan and getting funded, speak with a tax professional to ensure it is eligible for a tax deduction. The cost of the equipment can also be deductible through the Section 179 Tax Deduction.
What are the other fees for an equipment loan?
Additional fees can vary with the type of loan, the lender, and other factors. Some loans require an origination fee, which is paid when the loan gets funded. Some loans will carry prepayment fees, and others might not. Be sure to review any legal disclaimers as well. Less reputable lenders might try to sneak in hidden fees.
One of the most important things to remember is to make your monthly payments on time. Late payment fees drive up your cost and seriously affect your interest rates. When you take out a loan like this, consider setting up automatic payments for the minimum monthly amount to ensure you never miss a payment.
Bottom Line
Equipment loans can help you grow your business and achieve your goals. Our calculator is designed to help you understand what financing will cost and what you can afford.
But you don’t need to go at it alone. Our industry experts are always available to help you navigate financing for your next purchase.
