Small Business
Equipment Collateral
Using purchased equipment as security for a loan, making it easier to get approved and often at better rates.
Also known as: equipment as collateral, secured equipment loan
What You Need to Know
Equipment collateral is when the equipment you're purchasing serves as security for the loan. This makes the loan less risky for the lender and often results in better terms for the borrower.
How Equipment Collateral Works:
- The equipment itself secures the loan
- Lender can repossess equipment if payments aren't made
- Reduces lender's risk, leading to better rates
- Easier approval than unsecured business loans
Benefits for Borrowers:
- Lower interest rates (6-12% vs 15-25% for unsecured)
- Higher loan amounts (up to 100% of equipment value)
- Easier approval process
- Longer repayment terms available
- Less personal guarantee required
Types of Equipment That Qualify:
- Construction equipment (excavators, loaders, bulldozers)
- Manufacturing machinery
- Commercial vehicles
- Agricultural equipment
- Medical equipment
- Technology equipment
Lender Considerations:
- Equipment must have resale value
- Newer equipment typically gets better rates
- Well-maintained equipment is preferred
- Popular brands are easier to finance
Risk for Borrowers:
- Equipment can be repossessed if payments stop
- May need to maintain insurance
- Equipment value affects loan terms
Sources & References
This information is sourced from authoritative government and academic institutions:
- sba.gov
https://www.sba.gov/funding-programs/loans/lender-match
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