How Does Equipment Financing Differ From a Traditional Business Loan?

Published June 11, 2019 by WC Team

Without the lifeblood of capital, the beating heart of your business will sputter and die. At some point during the life of your company, you will inevitably need an infusion of cash to keep it going. One of the many questions you will ask when this moment arrives is whether to apply for a loan specifically designed to finance the equipment you need or a more traditional business loan.

What Are Equipment Loans?

As the name implies, Equipment financing loans are earmarked specifically to pay for equipment. In many cases, your business cannot function without expensive pieces of machinery including computers, printers, medical items, and copy/fax devices. Some of these items can be quite expensive, particularly if you are in a specialized industry. Equipment financing loans can give you the cash you need to purchase what you require to keep your business humming.

Another benefit of these types of specific loans is that they enable you to spread formidable costs over a period of years. That makes the tractor that is a must-have for your agribusiness a feasible investment in spite of its hulking price tag.

Many entrepreneurs who are contemplating applying for a loan are frightened by the prospect of having to put down collateral that they already own such as vehicles or real estate before being granted a loan. That is not the case with most Equipment financing loans, particularly those offered by online and other non-traditional lenders. In most instances, the equipment itself serves as adequate collateral. All in all, getting equipment financing is often a win-win for your company: You get the capital you require to pay the often high price of the vital machinery you need at relatively low risk to you and at terms, you can afford.

What Are Business Loans?

Equipment-specific loans are not the only way to get your crucial funds. Standard Business loans are another viable option. Offered by conventional large banks as well as by online and other private non-traditional lenders, this is the old-school type of financing that entrepreneurs have long used to meet their capital needs.

Standard business loans can come from local lending institutions. Depending on the lender, you might be asked to provide varying amounts and complexities of documentation; in general, online and other nontraditional loans do not require you to jump through as many hoops during the application process and can get you approved within hours or days. That being said, interest rates are generally much higher. Whereas an equipment loan can only be used for that specific purpose, you can use capital from business financing for any company-related purpose, including expanding your inventory, relocating your storefront or launching a sophisticated marketing campaign.

When the rubber meets the road and you need a monetary shot in the arm, you have several options. The best way to determine which type of loan is best is to ask yourself what you will be using the money for and realistically how long you will need to pay it back. Once you have these answers, searching for the best lender and loan type is much easier.

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