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Equipment, Retail & Inventory

When You Should Turn to a Business Equipment Loan

Equipment loans are a special type of business financing reserved for equipment. These loans can be used to purchase anything from printers and scanners, to CNC machines, to cranes. To help you decide whether a business equipment loan is the right choice for you, we outlined specific situations in which a business equipment loan would support your small business.

8 Times Your Business Can Benefit from an Equipment Loan

  1. You need new equipment.

Clearly, the most popular reason business owners turn to equipment loans is because they need new equipment. Depending on your industry, you may need a new forklift so you can handle a special project, a wood burning stove so you can add pizzas to the menu of your restaurant or new office computers to streamline employee activities. Regardless of the type of equipment you need, an equipment loan can help make the purchase possible.

  1. Your equipment needs an upgrade to be competitive.

In some cases, you may need new equipment to replace old equipment or you may need new equipment so you can expand your offerings. Or, you may need to invest in new equipment even before it’s a dire need. Specifically, if you need more effective equipment to improve processes, maintain competitiveness in your industry or meet consumer demands, you may need to invest in your business with an equipment loan.

  1. Repairs are no longer sustainable.

If you are facing a repair to existing equipment, compare the projected repair costs with the cost of buying new equipment. In a surprising number of cases, repairs can be more expensive than replacements, especially if the repairs don’t get to the heart of the issue.

Do you anticipate repair costs outpacing replacement costs long before the end of the equipment’s lifespan? Are you constantly repairing the same piece of equipment over and over? Consider financial questions like these when deciding if an equipment loan has a more sustainable rate of return and is more affordable in the long run than repeatedly repairing old equipment.

  1. You don’t want to apply for a traditional, documentation-heavy business loan.

Another reason business owners turn to equipment loans is because they don’t have the time to navigate the traditional loan process. In most cases, to obtain a business loan you have to write a business plan, create detailed balance sheets and submit to a lengthy review process. Because the collateral on an equipment loan cuts down risk, these loans generally require less documentation, and that can be critical if you are trying to save time and money.

  1. You have a down payment for the loan.

Although terms and conditions can vary, in many cases, equipment loans require a down payment worth up to 20 percent of the equipment’s purchase price. As a result, if you don’t have the right down payment, you may not be approved. However, some lenders fund 100 percent of the equipment’s cost for borrowers with great credit or in exchange for a higher interest rate.

  1. A new equipment purchase would offset your tax burden.

When you make a new equipment purchase, you can typically write off the expense as a business expense, and if the purchase is eligible for the section 179 deduction, you can write off the entirety of the expense in the year of purchase, up to $500,000, rather than depreciating it slowly over time. That is true even if you use an equipment loan to finance the purchase. As a result, you may be able to write off the entire cost to lower your taxable income on paper and thus your tax liability, but you can still give your budget a break by paying for the equipment slowly over time.

  1. Leasing equipment doesn’t make financial sense.

In many cases, you can opt to lease a piece of equipment rather than buying it. This is exactly the same as leasing a vehicle. You pay a monthly or periodic lease fee, and at the end of the lease term, you return the equipment. At that point, you may be charged for any damage that occurred while the equipment was in your possession, but you also have the opportunity to buy the equipment, typically at a discount. Before accepting an equipment lease, crunch the numbers, and if an equipment loan is cheaper in the long run, take that option.

  1. You want to preserve working capital.

Business owners who turn to equipment loans don’t necessarily have empty bank accounts. In many cases, these entrepreneurs could simply write a check for the equipment. However, a big equipment purchase has the ability to decimate your working capital. If you are trying to preserve your working capital, it may make sense to obtain an equipment loan and keep your business checking account well stocked to handle payroll, utilities, marketing and other expenses.


There are multiple signs that you may need an equipment loan. In addition to reasons mentioned above, before making your final decision, carefully consider the return on investment. How will the equipment improve your business? Will it increase revenues? Save time and lower payroll costs? Reduce your tax burden? Once you’ve mapped out the potential benefits from a financial standpoint, look at the cost of the loan and calculate whether the purchase offers the potential return on investment you need in the long run.


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Kabbage Team

Kabbage is here not only to provide access to the small business funding you need, but to also help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at