Industrial equipment loans are used to purchase income producing equipment such as commercial-purpose vehicles typically larger than 2.5 tons, farming tools, forklifts, manufacturing machinery, machine tools, etc. Instead of putting up collateral such as your home or business assets (usually requiring a UCC filing), you use the equipment as collateral. Lenders will have different rates and terms. They will typically finance around 80% of the total purchase price for the equipment. Some lenders may be able to cover 25% of the soft costs of the loan depending on the type of industrial equipment, including taxes, software, shipping, installation, and maintenance.
Lenders may require bank statements, personal tax returns, business tax returns, business registration/entity documents, Net Operating Income (NOI = annual income, minus expenses that the property generates from its operations), a minimum Debt Service Ratio (DSR) of 1.25 (a DSR of 1 means that there is equal amounts of funds coming and going out. If you have a DSR greater than 1, it means you have positive cash flow. A number below 1 would mean you have negative cash flow).
Calculating your DSR is as follows: Net Operating Income divided by Principal and Interest payments.
● Talk to multiple lenders to see which terms, payments, and payment options are right for you.
● Ask the lender if you have a pre-payment penalty. You want to ensure you are able to pay off the loan in full before it is due without incurring any additional costs/fees.
● Some financing options allow you to deduct payments as an operating expense (please consult with your CPA).
● Check your monthly payments with our Business Loan calculator.