Celtic Bank Blog

Six Cash-Conscious Ways to Finance Your Equipment

When it comes to financing your equipment, there are different options to consider. You could use a loan, a lease, a line of credit, or even a business credit card. Having so many options can make researching your next upgrade overwhelming, but it’s worth your time!  Let’s take a look at the difference that using the right financing can make:

Over the past few years, Melanie has financed five new delivery trucks on three-year terms. The payments have gotten pretty big, which means her cash flow gets uncomfortably low at certain points of the month. So she applies for refinancing—consolidating her payments into one new loan with a term of seven years. This gives her a much better cash flow and the money she needs to invest in and grow her business.

By taking the time to reevaluate her equipment financing, Melanie was able to find an option that put her business in a healthier, more stable position.

While there are many different options for your equipment financing decision (for a complete list, see Equipment Financing: A Small Business Owner's Guide to Loans, Leases, and Lending), most options tend to fall into one of two categories: loans, or leases.



Equipment loans

Equipment loans give you the money you need to buy your equipment upfront, like any other loan. Except unlike other loans that require extra collateral, equipment loans use the equipment you purchased as the collateral. This speeds up the time it takes to approve your loan, since there’s no lengthy appraisal process on personal or businesses assets. It also protects you from losing your home or other assets in the case of loan default.

When it comes to an equipment loan, the amount available for these loans varies by lender and the type of equipment you’re financing. The terms of the loan are flexible, and they have a very high approval rate—great for newer businesses that don’t have credit established.

SBA loans

SBA loans are a great option for those looking to make big equipment purchases. Backed by the Small Business Association, they have higher approval rates than the traditional bank loan, making them an accessible option for many small business owners.

SBA loans have large limits—up to $5 million—that can be used on equipment. This means, whatever you need, you’ll be able to get the funding needed to buy it. And while the bigger loans may take a little longer to process, small loans (up to $150K) can be approved and paid out within days. With low interest rates fixed by the SBA and long repayment term options, SBA loans are a flexible, affordable solution to your equipment financing needs.

Term loans

Term loans, one of your basic business loans, have set interest rates, a variety of terms, and regular payment intervals. Because they aren’t backed by the SBA, term loans are generally more difficult to obtain—especially if you have a young business or a low credit score. So they aren’t for everyone. Still, they offer a flexible option for qualified small businesses looking to finance major equipment purchases.



Chances are, if you’ve looked into equipment finance, you’ve looked into equipment leasing. Quick and easy to get approval, equipment leasing is a popular option for small businesses looking to upgrade or get new equipment. Here’s how it works:

You find the equipment that you need. You sign a contract saying that you’ll pay a set amount of money per month (or week, or biannually, etc.) to use this equipment for a set period of time. The lender allows you to use the equipment, but you won’t actually own the equipment.

Leasing equipment gives you the chance to stay up-to-date with the latest equipment, without holding on to outdated equipment. For example:

Let’s say you own your own orthodontics practice. You use dental scanning and imagery technology to shorten appointment times, spot potential problem areas early-on, and increase accuracy in surgical procedures.

As technology continues to get better, new models are being released every few years to improve patient care. You pride yourself in offering the best possible treatment for your customers. But there’s a problem. Even if you can afford to buy the new equipment, what do you do with the old stuff?

Enter equipment leasing.

Equipment leasing gives you the opportunity to upgrade and keep your equipment current—without filling up your backroom with clunky old and outdated machines. And when the next generation of equipment is released, you’ll be able to upgrade guilt-free, relieved that you didn’t throw away hundreds of thousands of dollars on equipment that became obsolete within a matter of years.

If you’re worried that you’ll decide you want to keep your equipment but won’t be able to, don’t fear! There are some leasing contracts that allow you to buy the equipment upon completion of the lease at fair market value (original cost of asset, minus depreciation, compared against similar products). Others offer a dollar buy-out option, where you can purchase the equipment for a dollar at completion of the lease. Know that these dollar buy-out options can have very high lease payments before the purchase.


  Pros Cons
  • Own your equipment
  • Able to sell equipment once finished—possibly making some money back
  • Able to pay off loan early
  • High initial expense
  • Could get stuck with outdated equipment
  • Responsible for maintenance
  • Lower approval rates
  • Application process can be lengthy
  • Low initial expense
  • Easy to upgrade
  • High approval rates
  • Quick paperwork process
  • Don't have to pay for maintenance if lease includes maintenance warranty
  • No prepayment option
  • No equity
  • May be stuck in a leasing contract for longer than you need the equipment



Lines of Credit

A business line of credit allows you to borrow up to a determined amount and only pay interest on what you actually use. This can be a good option if you are unsure exactly how much your equipment is going to cost. To illustrate:

You own a successful sub shop downtown. Business has been booming, so you decide to open a second location in the new shopping center on the east side of town. Since you still need the equipment at your current location, you know you’ll have to buy new appliances to furnish the kitchen, storage, and dining area. While you have a fair idea of how much you’ll be spending, you know there are always those costs that somehow get overlooked.

Using a line of credit to apply for this loan can be a great idea. With loan caps ranging from $100K to $3 million, you can get approved to borrow up to a set amount, and only pay back—and pay interest on—what you use. So if you come out under budget, you aren’t stuck paying interest on money you didn’t even need. In addition, if you start your renovation process and realize you need more money, you’ll be able to go and get more funding up to your limit--without undergoing a whole new application process.

Lines of credit are fast, easy, and flexible. But they may come with high interest rates or lengthy contracts. Make sure you know the facts before deciding to take one of these loans.

Business Credit Cards

Business credit cards let you earn rewards on your smaller equipment purchases. While they may not work for buying larger, more expensive equipment, when it comes to replacing the break room refrigerator, or maybe outfitting a few of the office cubicles with standing desks, business credit cards give you the funding you need instantly. And, depending on the card, you may be able to qualify for rewards like cash back, flight miles, or points that can be traded in for other gifts later.

Business credit cards, though quick, do come with high interest rates compared to conventional or SBA loans. And the lower limits on them make them only reasonable for smaller equipment purchases. Before applying for one of these cards, make sure you do the research to learn the rates and fees associated with your potential card.

To learn more about the different options available for financing your next equipment upgrade, download our free resource, Equipment Financing: A Small Business Owner’s Guide to Loans, Leases, and Lending, available now.

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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