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Equipment Loans for Small Business: What Do You Need to Apply?

September 28, 2023

As your industrial company continues to grow, one of the most important decisions you will need to make is how to secure equipment to handle greater volumes of customer orders. An equipment financing loan from Texas Gulf Bank may be able to help solve this problem.

Before you start the equipment loan process, it’s crucial to understand what lenders are looking for in your loan application and what you’ll need to qualify for equipment financing.

Let’s review how these loans work, the benefits of equipment loans for small business purposes, and what to expect during the loan application process when you apply with Texas Gulf Bank.

What is Equipment Financing? 

Equipment financing is a type of small business loan specifically designed to help companies finance large machinery and equipment purchases. Whether you need production machines, vehicles, technology, or any other essential equipment, this financing option allows you to secure what you need to run your daily operations.

In the short term, equipment financing may help with stabilizing your company’s cash flow by allowing you to keep more cash on hand rather than making a large lump sum payment to purchase new equipment.

In the long term, choosing an equipment loan may give you the opportunity to strengthen your company’s credit history and increase future lending and buying power.

Equipment Financing vs. Equipment Leasing 

Before examining the application process, it’s important to understand the differences between equipment financing and equipment leasing. While both options enable you to acquire the equipment needed for your small business venture, the key distinction lies in ownership.

With equipment financing, you own the equipment once the loan is paid off. Conversely, equipment leasing involves renting the equipment, usually with an option to purchase it at the end of the lease.

Many local companies benefit from equipment financing since it provides access to the necessary assets for a business without draining cash reserves. An equipment loan often provides more significant long-term benefits to your business, while leasing may be more flexible for short-term needs. 

Which Businesses Benefit from Equipment Financing? 

Equipment loans are a versatile financing option that can benefit a wide range of industries and business types, including:

  • Production and Manufacturing
  • Construction and Contractors
  • Transportation and Logistics
  • Medical and Healthcare
  • Restaurants and Food Service
  • Technology and IT

Equipment financing may be able to help your company be better positioned for long-term success.

The Advantages of an Equipment Loan 

As a small business owner, you might have cash reserves from your own personal savings or from friends, family, and investors. Rather than spend all of your working capital on big equipment and machine purchases, it may be much wiser to finance equipment instead of buying it all at once.

An equipment loan may create these specific advantages:

  • Preservation of working capital
  • Spread costs over time
  • Potential tax benefits *
  • Improved cash flow
  • Predictable budgeting
  • Long-term savings
  • Asset ownership

* Consult a tax advisor regarding your specific situation.

The Different Types of Equipment Loans Available 

Companies in need of equipment financing have several effective loan options to choose from, which are designed to help small businesses acquire the equipment they need to operate and grow the company. These are the three primary types of equipment loans available through traditional bank lenders, including Texas Gulf Bank.

SBA Loans

The Small Business Administration (SBA) is a federal agency dedicated to supporting small business growth in the U.S. The agency helps small businesses owners gain access to financial resources and loan options that might not be available from traditional lenders.

The SBA offers two types of loan options for new businesses in need of effective financing solutions:

SBA 7(a) Loans

The SBA 7(a) loan program is one of the most popular options for small businesses. While it’s not specifically an equipment loan program, it can be used to finance equipment purchases.

Loan amounts are available up to $5 million, with repayment terms typically ranging from 7 to 25 years, depending on the use of funds. Interest rates for SBA 7(a) loans are available for both fixed and variable rate options. The maximum term for an equipment/machinery loan is 10 years, 25 years if real estate is included as part of the collateral.

SBA 7(a) loans may have lower down payment requirements and longer repayment terms than traditional equipment loans, making them attractive for small businesses looking to preserve cash flow.

SBA 504 Loans

SBA 504 loans are designed to finance major fixed assets, including equipment and real estate. These loans are typically used for larger equipment purchases and long-term heavy machinery.

The SBA 504 program offers long-term financing with fixed interest rates and in many cases, lower down payment requirements. The maximum SBA 504 loan amount is $5.5 million per project, with available maturity terms of 10-, 20-, or 25 years.

Conventional Equipment Loans

Beyond SBA loans, traditional equipment loans offered by banks are specifically designed to finance equipment purchases. These loans are often structured as term loans, with several term options.

Small businesses are required to provide a down payment which can vary depending on the equipment’s value. Equipment loans are secured by the equipment itself, which serves as collateral for the loan.

Equipment Loan Lenders Prioritize These Factors

Equipment financing lenders such as Texas Gulf Bank will need to review key financial documentation to determine your loan qualifications. This evaluation helps assess your ability to repay the loan. Applicants will need to provide the following information including but not limited to:

  • Completed equipment financing application
  • Business information about your company
  • Equipment details on the assets you wish to obtain through financing
  • 3 most current filed years of tax returns and financial statements for the company
  • Personal financial statements from the guarantor(s) of the loan for the most recent three years, entity documents, and collateral information
  • Additional documentation, such as a business plan and financial projections (e.g. annual revenue projections).

Once all required documents are submitted, the in-house loan review team at Texas Gulf Bank analyzes and underwrites the request. After underwriting, the loan is submitted for final approval, and if approved, we expedite funding so you can quickly begin securing the equipment and machinery needed.

Equipment Loans for Small Business: Why Choose Texas Gulf Bank? 

Texas Gulf Bank has over 110 years of experience partnering with local small businesses to provide loan solutions that help them grow and achieve long-term success. As a community bank in the Southeast Texas Gulf Coast region, we understand the unique needs of Texas business owners and provide a wide range of strategic loan options.

Our team of loan experts offers equipment financing solutions tailored to your specific loan requirements and business goals. We pride ourselves on providing excellent customer service, competitive interest rates, and financing plans that fit your budget.

If you are ready to take the next step in your business journey, contact Texas Gulf Bank today to discuss equipment loans for startups. Our team of business loan officers can guide you through the application process and ensure you get the financing you need.

Your equipment and machinery are often the foundation of your business, and having the right equipment financing loan makes all the difference. Contact a lender today so Texas Gulf Bank can help you continue to grow the business.

All loans subject to credit approval.

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