June 29, 2021

How to Apply for Industrial Equipment Financing

For these businesses, effectively purchasing, using, and maintaining equipment is a top priority. Key indicators, like the business’s cash flow, liquidity, and return on investment, depend on how industrial equipment purchases are financed. Given the business implications, it’s important to know how to apply for an industrial equipment loan. So in this post, we’ll review what industrial equipment financing is, how it can be used, and how the application process works.

How Industrial Equipment Financing Can be Used

You can use industrial equipment financing to purchase or lease tools that you would use to manufacture, process, compound, or produce something for sale. Typically, you’d use industrial equipment financing when:
  • Your company is growing
  • A new project is starting
  • You want to expand your offerings
  • Old equipment has become obsolete or damaged
Industrial equipment doesn’t include things like computers or office furniture. Rather, industrial equipment financing is for machines you need a license or special training to operate such as:
  • Cranes
  • Bulldozers
  • Industrial robots
  • Lathes
  • Welding machines
  • Food packaging machines
  • And more
To be clear, you don’t have to use industrial equipment loans to finance your equipment purchases. You can always purchase your equipment outright. However, financing spreads out the expense of heavy equipment which gives your business greater financial flexibility.

How to Apply for an Industrial Equipment Loan

Understand Your Current Position

Before evaluating lenders and equipment financing, you need to answer a few basic questions.
  • Why do you need this type of equipment for your business?
  • How do you expect to utilize the equipment and for how long?
  • How will the equipment impact your cash flow, revenues, and profits?
  • When/if you decide to sell your business equipment, what will it be worth at that time?
  • What is a monthly payment that your business can afford?
By asking and answering these questions, you’ll be better equipped to research options and discuss your needs with a lender.

Make Sure You Qualify

Industrial equipment lenders’ eligibility requirements vary widely. So you’ll want to make sure you meet their minimum requirements before you apply. Of course, even if you meet their minimum criteria, you’re not guaranteed approval. However, you can save a lot of time by eliminating options that have too stringent qualification criteria. Generally, qualification criteria include:
  • Credit History: To qualify for an industrial equipment loan, you’ll need a credit score of at least 550—though most lenders prefer higher scores.
  • Revenues: Lenders often set minimum revenue requirements which you’ll need to surpass to have a chance at approval.
  • Business History: All else being equal, the longer your business has been established, the better.
Remember that these are just a few of the most common eligibility requirements. Many lenders will have additional requirements as it relates to your business’s financial history. New call-to-action

Determine if You Can Make A Down Payment

Whether you’re leasing or purchasing, when applying for equipment financing, you’ll likely need to make a down payment of 5 to 10 percent. For the lender, this helps ensure that you and your business are invested in the purchase and therefore less likely to default. \ Depending on the equipment, 5 to 10 percent of its purchase price can be a large amount. Therefore, you should ensure that you can afford your down payment. Approval will be difficult, if not impossible, if you can’t make a down payment or don’t meet the minimum requirements outlined above. In that case, your options are to improve your finances to meet the requirements or seek alternative financing (more on that below).

Determine your preferred type of industrial equipment lender

There are three major types of industrial equipment lenders—banks, online lenders, and captive finance companies. Captive financing companies are financial subsidiaries owned by equipment manufacturers. Each of these lenders has its benefits and drawbacks. Banks typically offer the most competitive rates, but their application process is often cumbersome. Online lenders can process your loan quickly, but may be more expensive. Captive financing companies have the benefit of specific expertise, but they’ll only offer financing on the equipment their parent company sells.

Weigh your financing options

Within industrial equipment financing there are many loan amounts, loan terms, and structures to consider. In addition to equipment leases and small business loans for industrial equipment, lenders often also offer refinancing, working capital loans, and used equipment financing. The structure that’s best for you depends on your finances, business goals, and needs. For example, leasing industrial equipment is generally more cost-effective if you plan to upgrade your equipment frequently. Also, as you decide between lenders, think about what future needs you may have. While a lender who only offers financing for new pieces of equipment may work well short-term, ideally you’ll find a lender that can grow with you.

Remember to Consider Industrial Equipment Loan Alternatives

In the right scenario, industrial equipment financing can be key to evolving your business. However, it’s not the right business financing product for everyone. Fortunately, there are alternatives—each of which has its own benefits and drawbacks—that you should consider. These alternatives include invoice financing, asset-based loans, 7(a) loans, 504 loans, and business lines of credit. While we won’t get into the precise details of each alternative, you can read more about each option by clicking on the links below: