Equipment Loans (Over 100K)

Monday December 29th, 2003

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How much can you borrow for an equipment loan?

Equipment financing is easier than other forms of financing because the asset to be acquired becomes collateral. This is even more favorable to the borrower particularly when the equipment is general purpose with limited obsolescence.

Equipment loans vary in terms of borrowing amounts. Equipment financing includes business vehicles, computers, electronic technology, tools or other fixed assets. The amount of the loan depends on the cost of the equipment/ fixed asset purchased or refinanced and the advance rates to be provided. Aside from the value of the equipment to be financed, the amount of the loan will depend on the firm’s historical and projected revenues and cash flow. A debt coverage ratio of at least 1.25 to 1 or a minimum of 1 to 1 will be required.

Advance Rates:

---Advance rate or the amount of the loan varies.
---If the equipment is new and general purpose, advance rates may be 100%.
---Advance rates on used equipment will vary from 75% to lower, depending on the type of equipment. With equipment, especially computer and electronic technology, the obsolescence of the equipment is a consideration when advance rates are determined.

Repayment Terms:

---These terms generally match loan purpose and life expectancy of the equipment. The life expectancy for computer equipment is monitored. By payoff time, the computers may become obsolete with limited liquidation values.
---Collateral is comprised of equipment purchased or refinanced. It may include all business assets.

Financial statements required:

---Copies of certified business tax returns for the past three years, interim business statements (balance sheet and income statement) and projections for three to five years.
---Depending on the amount and financial strength of the business, a personal guaranty may or may not be required. If a personal guaranty is required, then the owner/owners are required to submit personal statements and tax returns.