How to Use an SBA Loan to Buy Equipment

Which SBA programs can cover equipment

The SBA 7(a) loan is flexible and commonly used for equipment. The 504 program is built for major fixed assets such as heavy machinery and real estate.

Two programs come up most often:

• 7(a) loans can fund equipment among other business purposes. Read the SBA 7(a) loan.
• 504 loans are structured around large fixed assets with long useful lives. See SBA 504 loans.

Smaller purchases may fit a microloan. Compare them in 504 vs. 7(a) and microloans vs. 7(a). Program terms, limits and rates change, so confirm current details with the SBA or a participating lender.

What the loan typically covers

New or used equipment, delivery, installation and sometimes related costs can be financed. The equipment generally serves as collateral.

Eligible purchases commonly include production machinery, vehicles used in the business, kitchen equipment, medical devices, tools and technology. Installation, shipping and sales tax may be included depending on the lender. Used equipment can qualify if the price is supported.

Lenders usually take a lien on the equipment, and may ask for a personal guarantee and additional collateral. Learn more in SBA loan collateral requirements. Consider the useful life, since the loan term is usually matched to it.

What lenders look at

Lenders review credit, time in business, cash flow, the equipment's cost and how it will earn money. Be ready to show the numbers.

Expect to provide:

1. A vendor quote or invoice for the equipment
2. Business and personal tax returns and recent financial statements
3. A debt schedule
4. An explanation of how the equipment increases revenue or lowers cost
5. Evidence of your down payment, if required

They will test whether your cash flow covers the new payment. Understand the measure in debt service coverage ratio, and check SBA credit score requirements before you start.

Do the payback math first

Compare the added monthly profit from the equipment to the monthly payment. If profit does not clearly exceed payment, rethink the purchase.

In this illustrative example, you buy a $120,000 machine that adds $6,000 a month in profit. A loan with a $2,500 monthly payment leaves $3,500 of extra monthly profit before other costs. A faster product with a $4,200 payment would still be positive but thinner.

That is the real comparison: slower and cheaper versus faster and more expensive. If you lose business waiting a month, faster funding can pay for itself. Use the equipment payback period calculator guide and the cost of waiting to buy equipment to run your own figures.

The timeline and how to speed it up

SBA equipment loans often take weeks from application to closing. A complete package and quick responses are the best ways to shorten it.

Delays mostly come from missing documents, slow quotes from vendors and unresolved credit items. To move faster, gather documents first, get a firm vendor quote, and answer lender questions the same day. Ask the lender for a checklist at the start. See how long an SBA loan takes and how to apply for an SBA loan.

Also confirm the vendor will hold pricing and delivery until funding closes, and plan insurance for the equipment, which lenders typically require.

When equipment financing is the better route

If you need the machine in days or the SBA process is a poor fit, standard equipment financing can be faster, though it may cost more.

ROI Funder places equipment financing, typically in 2 to 7 days, as well as SBA loans for borrowers who prefer the lowest cost and can wait. The equipment often serves as the collateral, which can help when other assets are limited.

Eligibility starts at 500+ FICO, 6+ months in business and $20,000+ monthly revenue, with amounts from $5,000 to $5,000,000. Applying takes a few minutes, uses a soft credit pull and involves no obligation. Ask to see total cost, payback period and monthly-equivalent payment for each offer. Our guide to equipment upgrades adds more detail.