Celtic Bank Blog

Equipment Finance Think: Scenarios to Test Your Practical Knowledge of Equipment Financing

How well do you understand equipment financing? Time for a little pop quiz!

Let’s take a look at how three of the most common equipment financing strategies play out in the day-to-day runnings of your business. Keeping in mind traditional equipment loans, leases, and options like SBA 7(a) loans and lines of credit, read the following examples and determine which financing strategy you would recommend for the situation. Then, check your answers against those of our equipment financing experts!

As you read each case, consider the amount of money needed, when it’s needed, and the type of equipment to decide which loan option will work best for you. If you need a refresher course, check out our post, Six Cash-Conscious Ways to Finance Your Equipment. Or, for an even more in-depth look into these equipment financing strategies, download our full, free guide, Equipment Financing: A Small Business Owner's Guide to Loans, Leases, and Lending.

Scenario 1: The POS System Rehaul

You own a thriving eight-pump gas station and convenience store in a small South Dakota town off the main interstate. Business is great, but the new EMV chip card regulations are requiring some expensive changes for your station. Your current pump dispensers are too old to accept the new systems, which means you’ll have to replace those, too. You’re now looking at $130K just to get your gas station ready for the system. Plus another $4K for the in-store systems and software. You have a few months to make the changes, and—once made—these pumps should last for years to come. What do you choose?


The SBA 7(a) loan. Why? Consider the loan amount. $130K is a pretty big loan, so something like a business credit card or line of credit isn’t going to cut it here. Plus, you don’t really want interest rates that high on a loan this big. And since these pumps are going to be permanent fixtures for years, leasing isn’t a good option, either.

Term loans would have been a viable option—except that this equipment upgrade is strictly regulatory. You don’t expect to see a huge return on investment from the change, as the new pumps aren’t much faster or more efficient than the previous ones, making it hard to convince a traditional bank to give you this loan. An equipment loan would get you everything quickly, but at a steep cost which seems avoidable since this isn’t a time-urgent request. So you decide to go with an SBA 7(a) loan.

The 7(a) loan can get you what you need to make the changes, and at an affordable interest rate. Since the matter isn’t pressing, waiting an additional day or two to get the loan processed shouldn’t be an issue. And between the store and the station, you have the equipment you need to meet the collateral requirement. 

Scenario 2: New Computers

You own a small after-school tutoring center. In addition to traditional student sessions, you recently partnered with the local community college to offer computer classes as part of their continuing professional and technical education courses. There’s just one problem: these classes are going to require more computers than you’re currently set up for.

Right now, your computer lab is set up to host eight students at a time; the class size for the new courses will be 18-22 students. And because the class is supposed to help participants master the latest and greatest in technological innovation, your computers need to be current. The class starts next month, and by the time you purchase all the computers, monitors, speakers, software licenses, and additional tables and chairs for the computers, you’re looking at just over $52,000 to get set up. What should you do?


Try equipment leasing. Why? You’re in a little bit of a time crunch with the class starting next month, and the equipment leasing process can be significantly faster than the loan approval process. Leasing is available to cover the full amount you need, and—perhaps most importantly—leasing fits the type of equipment you need.

Think about it: technology is constantly evolving. Within three to five years, you’re going to want to upgrade those computers and software—especially as you start to integrate more advanced computer classes into your courses. You could purchase the computers, and then try to sell them when you’re ready to upgrade. You could let them fill up a back room somewhere. Or you could lease. You use the computers for the length of the lease, and when you’re done, you’re free to move on to a newer model.

Scenario 3: Commercial Oven Replacement

You own a successful downtown bakery specializing in breads, rolls, and small confectionery items. Last night, the main oven that’s been on its last legs for years finally stopped working. The repairman this morning recommends you get a new one, but your downtown location has large lease payments and high overhead costs. There just hasn’t been enough money to replace the machine.

If you were to replace it, the small size of your bakery necessitates purchasing an oven and proofer combination machine—which start at $25,000 plus installation. Every day you’re without the main oven, your available production, and sales, is cut by more than half. What do you do?


Apply for an equipment loan. Why? Equipment loans are fast, because they use the equipment you’re getting as the collateral. Instead of waiting weeks for an appraiser to come and survey your property, that oven proofer would serve as your collateral.

Most equipment loan lenders offer flexible repayment terms, meaning you can break your monthly payments down into something manageable for your budget. And because your loan has collateral attached, you’ll be able to qualify for a lower interest rate as well.

So. How’d you do? At the end of the day, it comes down to these three things: what do you need? When do you need it? And how long are you going to use it?

Knowing the answers to these questions will help you find the best financing option for your business. And, when in doubt, remember that you can always contact a trusted lender to help walk you through your options.

To learn more about how to find the best equipment financing for your business, check out our free downloadable guide, Equipment Financing: A Small Business Owner’s Guide to Loans, Leases, and Lending.

Facts and data presented in this guide are for illustrative purposes only. Celtic Bank applicants are subject to our credit and underwriting standards to determine credit worthiness. Interest rates, fees, terms and conditions are subject to change at any time without notice and will be disclosed upon final loan approval. This solicitation is not a guarantee of qualification. 
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