Asset-based, equipment financing or an SBA loan: which door to try first
By Klark Sparks · Published · 8 min read
The short answer
Try them in order of cost. An SBA loan is the cheapest and the slowest and wants a clean file. Credit-led equipment financing is the middle and suits most businesses with a year of trading and a reasonable score. Asset-based lending is the most expensive and the most reachable, and it is the right answer when one of the first two has already said no or when speed decides the deal.
Part of our guide to Collateral Loans — what it is, what it costs, and who it suits.
Not sure this is the right product at all? The Idaho small business funding guide covers every option an Idaho business has.
Three lenders can finance the same excavator and the deals will not resemble each other. The difference is not the machine. It is what each one is underwriting.
SBA: cheapest money, heaviest file
An SBA programme underwrites the business — profitability, two or three years of history, the owner’s credit, and a clean debt schedule. Citizenship is an absolute requirement. A merchant cash advance sitting on the books will usually have to be consolidated or cleared before the file can move.
In exchange, the money is the cheapest available to a small business and the terms are the longest. If your file fits, this is where to go, and the weeks of paperwork are worth it.
Equipment financing: credit-led, asset-secured
The middle path and the one most under-used. The equipment secures the deal, which makes approval easier than unsecured borrowing at the same credit level, but a score still decides and a year or more of trading is usually expected. New equipment from a dealer is the happiest case; older or specialised machines need more deposit.
A surprising share of businesses that assume they need something harder actually clear this, and they clear it for meaningfully less money. It is worth an honest attempt before moving down.
Asset-based: the asset decides
No score minimum, no trading-history requirement, no citizenship requirement, private sellers accepted, start-ups fine, discharged bankruptcies survivable. Decisions in a day or two. In exchange: a substantial deposit, strict rules about the asset itself, and the most expensive money of the three.
A comparison worth keeping
- Cost: SBA cheapest, equipment financing in the middle, asset-based highest. The gaps are large, not marginal.
- Speed: asset-based fastest by a wide margin, equipment financing days to a week, SBA weeks.
- Credit: SBA strictest, equipment financing moderate, asset-based effectively open.
- Deposit: SBA and equipment financing often little or none, asset-based twenty to forty percent.
- What declines you: SBA on the business and the debt schedule, equipment financing on the score, asset-based on the asset.
Where we will send you away
If a file clears a bank or an SBA desk, that is where it should go, and we will say so even though it is not the version of the conversation that pays best. The same applies between the other two: a business with a 680 score buying a new machine from a dealer belongs in equipment financing, not in an asset-based structure, and placing it in the latter because it closes faster would be charging the client for our convenience.
The case for starting at the bottom anyway
Occasionally the expensive door is the right first door. A contract with a mobilisation date in nine days. A machine at auction. A replacement for something that failed in the middle of a season, where two weeks of downtime costs more than the difference in financing ever will.
In those cases speed is not a convenience, it is the economics of the deal. Be honest with yourself about which situation you are in, because "I would rather not do the paperwork" is not the same thing as "the paperwork costs me the contract".
Common questions
Can I refinance out of an asset-based loan later?
Does an MCA on my books stop me?
I am not a US citizen. What is open to me?
Which is fastest if I need the machine this week?
About the author
Klark Sparks, co-founder and commercial finance broker at Sparks Family Finance.
Klark works with owners at the two points that decide everything: when they are working out whether to start, and when the business is running and needs capital to keep going. He would rather give someone the honest answer — including that borrowing is the wrong move this quarter — than place a deal that looks good this month and hurts next year.
Products covered here
Where this comes up most
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Want this applied to your actual numbers?
Reading about it only gets you so far. One short application, a soft credit pull, and a straight answer about what fits.