What Documents Are Required to Apply for an Equipment Loan?

Contents

Key takeaways Business plan Financial statements Purchase or franchise agreement Accounts receivable and accounts payable Appraisal Legal documents Bottom line Frequently asked questions

Key takeaways

The list of documents required for an equipment loan varies based on the lender, type of loan and type of equipment being purchased
Documents a lender may require include business plan, multiple financial statements, personal and business tax statements and other legal documents
The main objective of the documents is to give a snapshot of a business’s viability and its ability to make loan repayments for the long term

When applying for an equipment loan, the lender will provide you with its own list of documents required to be approved. The list can vary based on the lender you’re working with, the type of loan and the types of equipment you’re buying. For example, online lenders often keep documentation to a minimum for a quick application and approval process.

In general, these are some documents you may need to show that your business can repay the equipment loan.

Business plan

A business plan speaks volumes about your strategy for how you’ll grow and become profitable. Lenders often require it because they have a vested interest in knowing the details about business operations, the market conditions and financial projections you expect to see over time. Details to include in your business plan:

Key objectives
Target market
Description of products and services
Marketing strategy
Market research into competitors and target customers
Mission statements
Current financial picture
Financial projections, including the break-even point

Financial statements

Lenders look at multiple financial statements to evaluate your business’s overall financial situation. They use these statements to predict whether your business has the ability to repay the loan and to determine the loan amount you qualify for.

Have these financial documents on hand when you apply:

Bank statements for a picture of cash flow
Balance sheet to show assets and liabilities
Profit and loss statement
Revenue forecasts
Personal and business income tax statement from the past three years
Personal and business credit history

Bankrate insight

In some cases, lenders require personal financial statements or credit reports, particularly if you’re a startup or don’t have an extensive business credit history. Lenders may also require you to have a business checking account.

Purchase or franchise agreement

Next, if you bought your business from another individual, you will also need the business purchase agreement. This should give information about the buyer and seller as well as what equipment or assets were included in the sale.

It also outlines the responsibilities that the buyer and seller have toward the business after the sale, important if the previous owner will still retain some ownership or employment.

Likewise, if your business is a franchise, you’ll need to provide the franchise agreement granting the rights to operate under the franchised brand.

Accounts receivable and accounts payable

Along with the other financial statements required for a business loan, lenders also need an income statement showing your business’s revenue and expenses. Seeing all accounts receivable and payable helps the lender understand your current financial position.

Appraisal

Depending on the types of equipment or how much equipment you’re buying, the lender may want an appraisal to determine the commercial equipment’s true value. The lender is more likely to require this documentation for used equipment since the valuation will factor in the equipment’s current wear and tear.

Legal documents

Finally, lenders who offer equipment loans will need to see that your business is compliant with registration and licensing requirements to run legally. Documents you may need to provide:

Business entity documents, such as articles of incorporation
Business licenses
Commercial lease, if applicable
Contracts with third parties
Employer Identification Number (EIN)

Bankrate insight

To look up your EIN, you can check business financial documents like recent income tax returns. Otherwise, you’ll need to call the IRS directly to retrieve the number.

Bottom line

The documentation needed for a small business equipment loan is similar to other business loans, except that the lender may need an appraisal for the equipment you’re buying. The main objective is that these documents give a snapshot of your business’s viability and that its finances can handle loan repayments for the long term. The list of required documents is ultimately at the discretion of the lender you choose for your equipment loan.