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It happens. Business is chugging right along — until it isn’t. You might have a slow month or two when you find it difficult to cover business expenses, including payroll. What then? How can you ensure your staff gets paid as your business gets back to normal?

Fortunately, there are business loans you can use to cover such expenses at times like these. In fact, there are even specific payroll loans to help.

To clarify your options, here’s a closer look at small business loans that cover payroll.

What Are Payroll Loans?

“Payroll loans” is an umbrella term for any type of short-term financing that small businesses can use to cover payroll and related expenses, such as staff health insurance premiums.

Many different loan types are under this umbrella, including short-term business loans, business lines of credit, invoice factoring, cash advances, and working capital loans.

Because payroll loans have to be funded fast, they’re frequently offered by online, alternative lenders, though you may be able to get one through a bank or credit union as well. Qualification requirements, interest rates, and repayment terms for a payroll loan will vary by the lender and the amount of the loan.

How Do Payroll Loans Work?

As noted above, payroll loans fund quickly (sometimes in just a few days) and generally have a repayment term of one year or less. Specifics about how your payroll loan works will depend on the type of loan you choose.

For these short-term loans, you may be required to make weekly — or even daily — payments to the lender throughout the life of the loan. Payments usually contain principal and interest.

Common Uses for Payroll Loans

Payroll loans can typically be used to cover payroll, payroll taxes, and employee benefits. Before applying for any kind of business loan, however, it’s wise to research any rules about what that loan can be used for, so you can be sure to stay within those parameters.

Depending on the type of loan you choose, you may also be able to use a payroll loan to cover other business expenses such as inventory and office supplies.

4 Types of Payroll Loans

Payroll financing is generally offered via these four types of small business loans.

1. Invoice Factoring

If you have unpaid customer invoices, you may be able to borrow money against those invoices with invoice factoring.

With this type of financing, you sell your invoices to a factoring company, which then forwards you up to 90% of their value right away. The factoring company then owns the invoices and gets paid when it collects from your customers. Once the factoring company gets paid, you get the remaining value of those invoices, minus a fee. Keep in mind, though, that invoice factoring can cost more than other forms of business financing.

2. Short-Term Loans

If you need to make employee payroll right away, a short-term business loan could come in handy. These loans are typically offered to small businesses by online lenders. Once you get approved, you can access the funds quickly — sometimes on the same day. However, the repayment terms are short (often three to 18 months), and interest rates tend to be higher than longer-term small business loans.

3. Cash Advances

Instead of getting a loan to cover payroll, you may be able to get a cash advance based on the volume of your credit card receipts. With this type of financing, called a merchant cash advance, the funding provider gets paid back by taking a portion of your future credit card sales each day.

You can usually get approved fast (often within a day or two) with minimal paperwork. But you’ll likely pay for this convenience in the form of higher interest rates.

4. Lines of Credit

Another option to consider is a business line of credit. Rather than getting all your money at once, you can borrow against the line of credit whenever you need cash. You can borrow a little, pay it back, and then borrow again. Terms will vary by lender, but interest on lines of credit can be lower than credit card rates.

Advantages and Disadvantages of Payroll Loans

If you’re considering a small business payroll loan, weigh the pros and cons.

Pros of Small Business Payroll Loans

Some payroll loans require minimal paperwork, vs. others like bank loans or Small Business Administration (SBA) loans. That means you may be able to apply and get approved within minutes. Many lenders will deposit funds in your bank account the next business day, so you can get the cash when you need it.

Certain payroll loans for small business are easier to qualify for than others. Some business loans don’t do credit checks; others consider qualifications other than your credit scores.

And finally, you could lower your risk of staff turnover. Rather than struggling to pay staff, being able to keep payroll smooth and steady can help you keep those great hires you’ve invested time and money in.

Cons of Small Business Payroll Loans

Depending on the type of loan, you may need to repay it within a year or so. The payments may be large and could cut into your profit margins. It can be a good idea to plan out how you’ll pay your loan back as part of your monthly budget.

Likewise, some loans come with higher interest rates, particularly short-term business loans. If you can’t qualify for a bank loan or an SBA loan, your interest rate may rise into the double digits.

And while a payroll loan can solve short-term cash crunches, it won’t be much help if you have bigger financial issues. Consider it a Band-Aid, not a long-term solution.

How to Apply for a Payroll Loan

Once you’ve explored your options for payroll loans, it’s time to choose the one that’s the best fit for you.

The better your credit, the better the terms you are likely to qualify for. This is generally the case for loans.

If you have a high credit score, consider a long-term loan from a bank or the SBA.

If your credit’s less than stellar, there are options that may cost more. Look to merchant cash advances, short-term loans, and lines of credit.

Recommended: Equipment Financing

What Are the Requirements for a Payroll Loan?

Once you’ve landed on the best fit, review the requirements to make sure you meet them. These may include the following:

Business Credit Score

If you have a business credit card and have established a credit history through your business, then your company has a business credit score that is separate from your personal credit score. The higher your business credit score, the more likely you are to get a bank business loan with attractive rates and terms.

Business History

Banks typically want evidence that you’ve been in business for at least two years, since this indicates that you have a successful business model. Online and alternative lenders may have less stringent requirements for how long you’ve been in business.

Debt-to-Equity Ratio

This is the ratio of your existing debt to your business equity. It’s okay if you are carrying some debt, but to approve a loan, banks ordinarily like to see a healthy balance between debt and equity. Generally, a debt-to-equity ratio of around 1 or 1.5 is considered good, but that may vary depending on your industry.

Business Plan

Banks and other lenders will often want potential borrowers to submit a plan for how they will use the loaned funds. Even if you only plan to use the money for payroll, you may want to make a business plan. It demonstrates that you have fully thought through how much you need, how you will use the capital, and how you will pay it back.

Collateral

Some business loans require that you put up an asset to secure the loan. Known as collateral, the asset could be real estate, equipment, vehicles, or other tangible assets owned by you or your business. If your business can’t repay the loan in full, the lender can recoup its losses by seizing the collateral.

Alternative Small Business Loan Options

It’s a smart practice to be mindful of all your financing options, whether you need to cover payroll or another business expense.

Inventory Financing

If you buy and sell products, you likely spend a large portion of your money on inventory. Did you know that you can use the inventory you’re buying as collateral for a loan to purchase the inventory? Lenders will give you a percentage of the value of your inventory as a loan. Be aware that, should you not be able to pay it back, the lender can take the inventory to cover your debt.

Equipment Loans

Just as inventory financing uses inventory as the collateral, equipment loans use the equipment you’re buying as the collateral. Securing the loan in this way often helps you get a low interest rate. Equipment loans can be used to buy computers, heavy machinery, or company vehicles.

The Takeaway

Payroll loans are a type of short-term financing that small businesses can access quickly to cover wages and related expenses. Lenders will assess the business’s cash flow, history, debt-to-equity ratio, and credit score, among other criteria. Though rates on short-term loans tend to be high, you may be able to negotiate better terms by offering collateral, such as business inventory or equipment.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Can SBA loans be used for payroll purposes?

Yes, the Small Business Administration (SBA) has several loans that you could use for payroll and related expenses. These include 7(a) loans and SBA Express loans.

What does it take to qualify for payroll loans?

That will depend on the type of payroll loan you plan to apply for. If you opt for a short-term business loan from an online lender, you will generally need to show a personal credit score in the 600s, have at least one year of business history, and provide proof of business income.

How exactly do payroll loans work?

The details of a payroll loan will depend on the type of loan you want. However, in general, payroll loans work like any other type of short-term business financing. A lender forwards you a lump sum of capital that you agree to pay back (plus interest) in installments — which may be daily, weekly, or monthly — during the loan’s term. In the case of a payroll loan, the money you borrow is used for the specific purpose of paying your employees.

What are the risks of using a payroll loan?

If you take out a secured payroll loan — that is, one involving collateral — the bank’s risk is reduced, but yours increases. That’s because, if you default, the bank can seize your collateral. Also, short-term loan payments can be hefty, potentially reducing your cash flow and prolonging the debt crunch.

Can payroll loans help businesses avoid layoffs?

Yes. A business may not need to resort to layoffs or reducing company benefits if it can borrow money to cover wages and employment expenses. Avoiding layoffs could also help keep both morale and productivity high, which may in turn boost company revenues.

Photo credit: iStock/sasirin pamai

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In November 2024, the national unemployment rate was 4.2%, and the number of unemployed people stood at 7.1 million. Both numbers are close to the totals that were reported in October. However, these unemployment measurements are higher than a year earlier, when the jobless rate was 3.7% and the number of unemployed people stood at 6.3 million.

Unemployment rates were higher in November in 6 states, lower in 1 state, and stable in 43 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported. In November, 25 states and DC had jobless rate increases from a year earlier, 6 states had decreases, and 19 states had little change, according to the most recently available statistics.

An unemployment rate of between 4% and 5% is still considered low for the U.S. But while low levels of unemployment sounds like great news for American workers, it presents challenges too. Economists say that inflation cannot ease significantly while unemployment is low.

For small businesses, the problem can be particularly acute. Not only is it hard to fill job openings, but salary pressure increases and if there aren’t enough skilled workers, the business can stagnate or slump.

Looking At Unemployment Data By City

In this story, we are taking a look at unemployment rates by city to get a feel for the job landscape across America. Using Bureau of Labor Statistics (BLS) data, we have created a list that ranks the jobless statistics for the cities that show the largest populations within their respective states.

On our list, Detroit, Michigan, is the city with the highest unemployment in America, followed by Las Vegas and then Los Angeles. Within this list, many fascinating — and even contradictory — trends are revealed that have bearing on small business owners.

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What is the Unemployment Rate and How Is it Calculated?

The labor force participation rate in November 2024 was 62.5%. It has remained in a narrow range of 62.5% to 62.7% since December 2023.

The Bureau of Labor Statistics, which falls under the Department of Labor, measures labor market activity, working conditions, price changes, and productivity in the U.S. economy. The unemployment rate for any area is the number of area residents without a job and looking for work divided by the total number of area residents in the labor force.

In other words, the unemployment rate represents the number of unemployed people as a percentage of the labor force (the labor force is the sum of the employed and unemployed). What the BLS unemployment rate will not tell you is how many people have taken themselves out of the workforce, perhaps becoming so discouraged in their job search that they have given up hope of finding a job.

Some economists say that the nation’s low unemployment could be due, in part, to a low labor participation rate.

Recommended: Mompreneurs, a Complete Survey

U.S. City Unemployment Rates: Lowest to Highest

To gauge the current state of unemployment across all 50 states, we’ve zeroed in on the cities with the largest population in each state, along with the District of Columbia. The data from November 2024 represents the most recently obtainable complete figures from the Bureau of Labor Statistics.

Below is our list of ranked cities, beginning with the city that had the lowest rate of unemployment and moving to the highest.

50. Sioux Falls, South Dakota

After it reached the distinction of ranking lowest on our list at 1.6% in July, Sioux Falls is hanging on and even dipped a bit lower to 1.5% in November. “South Dakota traditionally has a lower unemployment rate than the rest of the country,” explained an economics professor in a recent paper. But the state’s low rates throughout 2023 and 2024 (South Dakota showed a jobless rate of 1.9% in November) creates a “double-edged sword.” The super-tight labor market means economic growth can be difficult, warned the economist.

49. Burlington, Vermont

The city of Burlington showed an unemployment rate of 2.1%, while the statewide unemployment rate was 2.4% in November. “There are nearly three job openings for every unemployed Vermonter,” according to the Vermont Department of Labor. Burlington is the industrial, tourist, and financial center of the state, with a population of 44,700. Burlington also has the distinction of being the least populous city in our list.

48. Fargo, North Dakota

Fargo, population 126,000, tied with Burlington, showing an unemployment rate of 2.1% in November 2024, while the state’s unemployment was 2.4%. One reason North Dakota has had such a low unemployment rate for years is because it is the fifth least-populated state in the United States. Fargo’s economy is based on education, the medical industry, agricultural equipment, and services.

47. Billings, Montana

The largest city in Montana showed an unemployment rate of 2.5%, down from 3.3% in the summer. Billings has a history of strength in agriculture and energy; more recently, it has focused on retail. In November. Montana’s unemployment rate reached its 41st consecutive month of unemployment at or below 3.4%.

46. Manchester, New Hampshire

The state of New Hampshire continued to show low unemployment at 2.8% in November. The jobless rate of Manchester, population 115,000, decreased from 2.9% last summer to 2.5% in November. The very low jobless rate does create special challenges for employers, such as dealing with the size of the workforce, which is smaller in New Hampshire than it was before the Covid-19 pandemic.

45. Huntsville, Alabama

The November 2024 jobless rate for Alabama of 3.1% continues the streak of low joblessness for the state. The unemployment rate of 2.8% for Huntsville makes it one of the country’s lowest for cities of its size. A metropolis of rapid growth, Huntsville has leading sectors in aerospace, defense, information technology, bioscience, and advanced manufacturing.

44. Jackson, Mississippi

With a population of 149,000, Jackson had a jobless rate of 2.8% in November, increasing from 2.6% in June. Jackson also has a lower average cost of living than the average for the U.S. Its major job sectors are advanced manufacturing, health care, information technology, and food processing. The state of Mississippi’s unemployment rate was 3.1%. In November, six states had unemployment rate increases, one of the largest being in Mississippi.

43. Oklahoma City, Oklahoma

The largest city in Oklahoma continued its successful plunge in unemployment in late 2024 with a rate of 2.8% in November. Oklahoma City has one of the world’s largest livestock markets, with oil, natural gas, and petroleum products as its largest sectors. As for the state, Oklahoma’s rate of 3.3% is part of a slow increase seen over the last six months.

42. Bridgeport, Connecticut

The unemployment rate in Bridgeport, population 148,000, came in at 2.9% in November, showing a major improvement since May 2024, when it was 4.4%. The state was at 3% in November. In a statement to the press, state Department of Labor Commissioner Danté Bartolomeo said, “We’re seeing sustainable job growth, a low unemployment rate, and a steady job market with opportunities for workers at all levels of their careers.”

41. Little Rock, Arkansas

Arkansas’ largest city’s unemployment rate was 2.9%, holding its dip from more than 3% in the summer.. Healthcare is a leading sector in Little Rock, followed by manufacturing and construction. The state had a jobless rate of 3.3% in November, with the largest expansions in employment in the sectors of private education and health services.

40. Minneapolis, Minnesota

The unemployment rate of 2.9% in November sent Minneapolis down nearly a percentage point, since the city showed a rate of 3.8% in July. The Twin Cities’ industries are dominated by healthcare, finance, manufacturing, and technology. Minnesota’s unemployment rate was 3.5% in November. ”Employers added staff and more Minnesotans started looking for work,” said Minnesota Department of Employment and Economic Development Commissioner Matt Varilek in a press statement.

39. Honolulu, Hawaii

With a population of 345,000, Honolulu had an unemployment rate of 2.9% in November, virtually unchanged since July. Job gains were seen in professional and business services, trade, transportation and utilities, and private education and health services. Overall, Hawaii had an unemployment rate of 2.9%, continuing its steady decrease in joblessness this year.

38. Nashville, Tennessee

The city of Nashville saw its unemployment rate drop more than a point in mid-2024 to 2.9% and stayed there throughout November, while the state’s jobless rate increased slightly to 3.5%. The city is famous for music and entertainment, but healthcare and manufacturing are leading sectors as well. The city, population 1.3 million, is one of the fastest growing in America.

37. Omaha, Nebraska

In November, Nebraska continued its low unemployment rate of 2.8%. Nebraska’s low jobless rate is believed to be due to the dominance of industries like manufacturing and agriculture, which are less volatile than the energy or hospitality sectors. Omaha, population 487,000, had a jobless rate of 2.9%.

36. Milwaukee, Wisconsin

The state of Wisconsin had a jobless rate of 2.9% in 2024, maintaining its steady low rate since it reached 2.9% in June. Its largest city, Milwaukee, had an unemployment rate of 3%. The three sectors that comprise most of Milwaukee’s workforce are service sectors, manufacturing, and retail trade. Total nonfarm jobs increased 300 over the month and 23,400 over the year to 3,043,500 jobs.

35. Virginia Beach, Virginia

Virginia Beach had a jobless rate of 3.1% in November, holding steady at that rate for several months. Real estate, defense, and tourism are major sectors of the city’s economy. The state had an overall jobless rate of 3%.The Commonwealth’s labor force participation rate remained unchanged at 66% in November.

34. Salt Lake City, Utah

Salt Lake City had a jobless rate in November 2024 of 3.1%, decreasing steadily since hitting 3.6% in June. Known as the “Crossroads of the West,” the city’s major industries are government, trade, transportation, utilities, and professional and business services. The state’s unemployment rate was 3.5%.

33. Portland, Maine

Portland’s unemployment rate increased from 2.5% in October to 3.2% in November. The state of Maine jobless rate was 3.1%. In November, six states had unemployment rate increases, and one of the largest was in Maine. The Maine Department of Labor wrote in a statement that the trend during the course of this year has been similar to the previous two years, with joblessness shrinking in the spring, staying low in summer, and moving higher toward year’s end.

32. Des Moines, Iowa

The largest city in Iowa had a November 2024 jobless rate of 3.2%, a sizable increase from 2.1% in April. Iowa’s seasonally adjusted unemployment rate was 3.2% in November.The state is recognized for its leading position in the agricultural sector, particularly corn, soybean, pork, and egg production.

31. Wilmington, Delaware

Located midway between Washington, D.C. and New York City, Wilmington is Delaware’s largest city and its economic engine. Wilmington had an unemployment rate of 3.2% in November 2024, a huge decrease from 4.8% in July. The state itself was at 3.9% unemployment, also decreasing throughout the year.

30. Baltimore, Maryland

At 3.3%, Baltimore continued to rank low for unemployment for a large city, but it is no longer attracting attention for its gains. Maryland’s state unemployment rate hit an all-time low in October 2023, at just 1.7%, marking the lowest state unemployment rate in the U.S., but it has risen most of 2024. In November, the Maryland unemployment rate was 3.1%, up from 3% in October.

Recommended: Maryland Small Business Grants

29. Kansas City, Missouri

Missouri had a jobless rate of 3.7% in November 2024, and Kansas City, its largest city, had a rate of 3.3%, a whole percentage point down from 4.3% in July. The unemployment rate in Missouri reached a record high of 11.4% in April of 2020 and a record low of 2.1 in May of 2022. Kansas City is the third largest beef-processing city in America and has strong sectors in health care, tech, retail, and finance.

28. Cheyenne, Wyoming

With a jobless rate of 3.5%, Cheyenne’s economy is based on light manufacturing, agriculture, the military and government, tourism, and transportation. Cattle- and sheep-raising continue to thrive throughout the region too. The unemployment rate in Wyoming was 3.3% in November, rising slightly over the last six months.

27. Phoenix, Arizona

Phoenix, population 1.6 million, has seen its unemployment swing back and forth this year.. It was 2.3% in April 2024. In November, it stood at 3.5%. One of the fastest-growing cities in America, Phoenix reached a record jobless high of 13.7% in April of 2020 and a record low of 2.5% in April of 1998. In the last 50 years, Phoenix’s economy has been powered by hospitality and leisure, but the city is also home to a growing number of high-tech, IT, renewable energy, and bioscience companies. Arizona had a 3.8% jobless rate in November.

Recommended: Small Business Grants in Arizona

26. Jacksonville, Florida

The largest city in Florida with a population of 954,000, Jacksonville had a jobless rate of 3.5% in November, unchanged since October. The state of Florida showed an unemployment rate of 3.4% in November. Nonfarm payroll employment increased in four states and the District of Columbia that month and one of the largest job gains occurred in Florida of +61,500.

Recommended: Recommended: Small Business Grants in Florida

25. Atlanta, Georgia

Georgia’s largest city with a population of 496,000, Atlanta had a jobless rate of 3.5% in November, compared with 3.9% in June. Georgia’s unemployment rate was 3.7%. The sectors with the most job gains included accommodation and food services, health care and social assistance, arts, entertainment, recreation, and management of companies and enterprises.

24. Boise, Idaho

With a population of 237,000, Boise had a jobless rate of 3.6% in November, where it has stayed pretty much over the last six months. The major economic drivers in the region include semiconductor and other computer product manufacturing, food product manufacturing, administrative and business support services, and construction. Statewide unemployment stood at 3.7%.

23. Charlotte, North Carolina

With a population of 879,000, Charlotte is home to corporations such as MetLife, NASCAR, Wells Fargo, Bank of America, and Lowe’s. Its unemployment rate was 3.6% in November, down from 4.2% in July. The state’s jobless rate was 3.7%, unchanged for the last several months..

22. Charleston, West Virginia

The city with the largest population in West Virginia has 46,700 people and had an unemployment rate of 3.6%, a sizable decrease from 4.4% in July. As it is the state capital, Charleston has government jobs as well as those in trade, utilities, education, and medicine. The chemical industry and the manufacturing sector are also significant. The jobless rate in West Virginia was 4.2% in November.

21. Columbus, Ohio

Ohio’s unemployment rate was 4.3% in November, down slightly from 4.5% in July 2024. Columbus, its largest city, clocked in at 3.7%. The number of workers unemployed in Ohio in November was 255,000, down from 256,000 in October 2024. The number of unemployed has increased by 44,000 in the past 12 months from 211,000.

20. Boston, Massachusetts

At 4%, Massachusetts showed fairly low unemployment in November, but Boston’s unemployment decreased to 3.7% from 4.2% in July. The city is the economic engine and cultural hub of New England, with higher education, health care, and financial services as the major drivers. In a recent survey of cities most attractive to recent college graduates when considering job openings and affordability, Boston came in at number 12, making it the top city in the Northeast.

19. Indianapolis, Indiana

The city of Indianapolis showed an unemployment rate of 3.8% in November, a decrease from 4.4% in July. An economist said in 2023 that there were 5 job seekers for every 10 open positions in the state. Central Indiana’s life sciences and healthcare sector generates nearly $84 billion in total economic output. The state of Indiana showed a jobless rate of 4.4%.

18. Seattle, Washington

Seattle, population 733,000, showed a sizable decrease in unemployment, its 3.8% jobless rate comparing to 4.9% in July. Thousands of tech sector layoffs in the Seattle area have had an impact, but the city continues to support innovation.The state of Washington’s unemployment rate was 4.6% in November 2024.

17. Portland, Oregon

Consistency is the key to this state. Oregon’s unemployment rate was 4.1% in November and 4% in October and has actually remained between 4% and 4.2% since October 2023. Construction rebounded in November from a three-month dip, returning the sector’s total employment to 117,500, about where it had been from July 2022 through August 2024. Portland, its largest city, had a jobless rate of 3.9% in November, the same as in October.

16. Charleston, South Carolina

Twenty-five states and the District of Columbia had unemployment rate increases from November 2023, the largest of which was in South Carolina (+1.8 percentage points) at 4.8%. This is the highest unemployment seen in the state since the Covid-19 lockdowns in 2020. The November jobless rate of 4% for Charleston, population 151,000, is also heading in the wrong direction, with a significant increase from 2.4% in April.

15. Philadelphia, Pennsylvania

The unemployment rate for Philadelphia stood at 4.1% in November, the same as in October. The state of Pennsylvania ranked at 3.5% in November 2024. While that may not sound like one of the good news stories, Philadelphia’s jobless rate continues a record low for the state. This low unemployment bolsters the region’s ongoing recovery from the pandemic, which hit Philly hard and led to the loss of more than 100,000 jobs in the first two months of Covid-19 alone.

14. Anchorage, Alaska

Anchorage, the city with the largest population in Alaska, had a jobless rate of 4.2% in November 2024, ticking up from 3.9% in October. Alaska often shows a relatively high unemployment rate. Over the last 40 years, the average unemployment rate in the United States has been 6.3%, while in Alaska, it averaged 7.9% since 1976. Therefore, the November rate of 4.6%, while higher than the national average, is low for this state.

13. Wichita, Kansas

The unemployment rate in Wichita, population 395,000, was 4.7% in July. Agriculture, manufacturing, healthcare, and energy drive the Wichita regional economy. The state of Kansas had a jobless rate of 3.5% in November,, which is lower than the national unemployment average and made it one of the three states with largest job gains in America this November.

12. Albuquerque, New Mexico

The largest city in New Mexico had a jobless rate of 4.2% in November, which is a decrease from 5.1% in July. It’s still a long way down from its pandemic high of 10%. Albuquerque and the rest of the state are on a growth curve — the top three industries are oil drilling and gas extraction, scientific research and development, and hospitals. New Mexico’s unemployment rate was 4.4% in November.

11. Louisville, Kentucky

With an unemployment rate of 4.3% in November, Louisville is showing a sharp decrease since the summer, when the city had a 5.2% jobless rate. Louisville, with a population of 628,000, is known for shipping and cargo and, more recently, for major manufacturing (with two Ford plants in the region) and health care. Kentucky’s jobless rate of 4.8% is higher than the national average.

10. Newark, New Jersey

In November, the city’s unemployment rate was 4.3%, the same as the last four months. However, this is still a marked decrease from a high of 9.7% in 2010. The city of Newark has a population of over 305,000, and some 25% of residents are living in poverty, according to U.S. Census data. The state’s jobless rate of 4.6% is above the national average.

9. New Orleans, Louisiana

The November 2024 jobless rate of 4.3% in the Big Easy ticked down from 4.6% the previous month. Unemployment has come a long way since its alarming Covid-19 days of 20% in April 2020 and an April 2021 rate of 9%. As a tourist favorite and a major port on the Gulf Coast, New Orleans is considered an economic and commercial hub, and Louisiana’s 4.3% unemployment rate is close to the national average.

8. Providence, Rhode Island

With a population of 189,000, Providence had a jobless rate of 4.4% in November, which is a decrease in the jobless rate from 5.2% in July. The state’s unemployment rate was 4.6%. About one-third of the city’s economy is based in trade, transportation, utilities, and educational and health services. The four Fortune 500 companies based in Rhode Island are CVS Heath, United Natural Foods, Textron, and Citizens Financial Group.

7. Denver, Colorado

Colorado’s jobless rate was 4.3% and Denver, its largest city, had a rate of 4.5% for the second month.. Considered a magnet for work-from-home professionals, Denver is a fast-growing city, but one with housing costs that are 36% higher than the national average. Software and financial services are among its hottest industries. Aerospace, digital communications, and food and beverage sectors are also expanding.

Recommended: Small Business Grants in Colorado

6. Houston, Texas

The November unemployment rate for Houston, the fourth most populated city in America, was 4.5%, a little bit higher than the state of Texas’ rate of 4.2%. The good news is Texas reached a new high with the largest labor force ever in the state’s history at 15,497,100. Its unemployment rate was at its lowest at 2.9% in May 2019 and at its highest at 13.1% in April 2020.

Recommended: Small Business Grants in Texas

5. New York, New York

The Big Apple had a jobless rate of 4.7% in November, same as October, which is, a decrease of almost a percentage point of 5.6% in July. This makes it one of the cities on our list with an unemployment rate higher than the national average. However, New York City, with its population topping 8.4 million, also shows gains in employment four years after the start of Covid-19 lockdowns. New York State is estimated to have lost about 2 million jobs in the immediate wake of the pandemic. The state has a jobless rate of 4.4%.

Recommended: Small Business Grants in New York

4. Chicago, Illinois

The November 2024 unemployment rate of 5% for the city continued a decrease from 6.4% in July. The city and its suburbs are home to 35 Fortune 500 companies, with strengths in manufacturing, printing, insurance, transportation, financial trading, and food processing. Unfortunately, Illinois’s rate of 5.3% was one of the highest in the nation.

3. Los Angeles, California

The city on our list with the second-highest population in America (at 3.9 million) had an unemployment rate of 5% in November, down from 5.8% in October. Both the city and the state of California have struggled since Covid-19. The state’s unemployment rate in July was 5.4%. Several factors are believed to contribute, including a mismatch between job skills among those who seek employment and what skills are needed.

Recommended: Small Business Grants in California

2. Las Vegas, Nevada

Las Vegas, the largest city in Nevada, had the second-highest unemployment rate on our list at 5.9%, close to the rate of 5.8% in October. Las Vegas shows a lot of turbulence in employment, with a high number of people in the workforce actively looking for jobs. Nevada’s rate was 5.7%. Ongoing recovery from the Covid pandemic and increases in short-term unemployment are contributing to Nevada having the highest unemployment rate in the nation, a state economist says.

1. Detroit, Michigan

The unemployment rate for Detroit of 6.3% in November 2024 follows 6.2% in October. The city has gone through a rough economic ride, starting well before Covid-19: Detroit experienced a 61% decrease in population from 1950 to 2010, lowering its ranking from the 4th most populous city in America to the 27th. Detroit’s jobless rate was an eye-popping 27% in June 2009. The state of Michigan’s jobless rate was 4.8% in November.

Notable Mention: Washington, D.C.

The nation’s capital of Washington, D.C., population 712,000, showed an unemployment rate of 5% in November, which is one of the highest for any large city in America.

What Factors Affect Unemployment Rate?

Unemployment is a key measure of the health of the American economy and considerable resources are put into analyzing it. There are many different reasons for unemployment. Apart from the common causes found in any economy — a worker leaving for another job or being fired — there is cyclical unemployment and structural unemployment.

Cyclical unemployment is caused by economic downturns or is related to changes in business conditions. As the name indicates, it can be temporary. After a recession ends, unemployment typically falls.

Structural unemployment is different. It usually means there is a mismatch between the jobs available and the skill levels of the unemployed. Technological changes, a lack of relevant skills, and jobs moving overseas cause structural unemployment.

Structural unemployment can be hard for a society to deal with — it produces permanent disruptions in the economy and obviously a lot of stress among the people who want to work but can’t get a job.

Recommended: How Does Unemployment Work?

How Does a Low Unemployment Rate Affect the Economy?

The problem of high unemployment seems far away indeed. A reasonable unemployment rate is somewhere between 3% and 5%. The current rate of unemployment means that the economy is producing near its full capacity, maximizing output, and driving wage growth.

However, the labor market can reach a point where each additional job added does not create enough productivity to cover its cost. This causes an output gap, or “slack,” in the labor market. The economy is in danger of becoming “overheated.”

Recommended: Success Secrets of Hispanic- and Latine-Owned Small Businesses

How Does Unemployment Affect Small Businesses?

An increasing demand for labor coupled with a falling unemployment rate can result in wage inflation. With fewer people available to work, employers have to increase wages to attract and hold onto talent. While that’s pleasant for the workers, some businesses can’t afford to pay a lot more. The money that might go to growing the business has to go toward payroll.

Also, when there are more jobs than there are people with the necessary skills and experience, employees may begin feeling overwhelmed and stressed. Small businesses typically have less money to funnel toward training and recruitment. This is a time when small businesses may turn to debt financing, whether it’s seeking a small business loan or looking for investors.

Recommended: Six Step Guide to Getting a Small Business Loan

The Takeaway

The national unemployment rate of 4.2% in November 2024 is edging higher after three years of markedly low unemployment, according to the Bureau of Labor Statistics. However, unemployment around 4% is still generally viewed favorably.

The cities of Detroit, Las Vegas, Los Angeles, Chicago, and Washington, D.C. all show jobless rates of more than 5%.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

Photo Credit: iStock/glegorly

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOSMB-Q125-001

Equipment leasing can be a convenient way to access the machinery your business needs. When you lease equipment, you rent it from a leasing company, commercial vendor, or even a lender who owns the asset (known as the lessor). The agreement allows you (the lessee) to use the equipment for a set period of time while making regular payments. When the lease period ends, you return the equipment to the lessor. Some agreements give you the option to buy it at the end of the lease.

This arrangement can be practical if you only need the equipment for a short while or prefer not to take out a loan for purchasing. Equipment that’s commonly available for lease includes vehicles, machinery, and specialty appliances.

Types of Equipment Leases

There are two basic types of equipment lease: operating leases and finance leases (also called capital leases). Related arrangements, such as sale-leaseback agreements, exist to provide additional financial flexibility.

Operating Leases

An operating lease is similar to a rental contract. It allows a business to lease equipment for a set period of time without necessarily purchasing the equipment at the end. Instead, ownership of the equipment stays with the lessor, who may also maintain and insure the equipment. Operating leases sometimes provide for early termination of the contract but may charge a hefty penalty.

Capital Leases

Capital leases — now also known as finance leases — are designed to be a pathway to ownership. Your business pays to use the equipment for a set period of time, and at the end of the lease term, you’d typically purchase the equipment. A capital lease is usually non-cancellable.

Sale-Leaseback Arrangements

With a sale-leaseback, you sell a piece of equipment and then lease it back from its new owner. You don’t even have to relocate the equipment. The advantages of this arrangement: It frees up working capital for your business and can help improve your balance sheet. There’s no need for a business line of credit, as you can use the sale proceeds to expand, hire additional employees, or build new products.

However, depending on the terms of the lease, the company may have to forgo some tax benefits. Be sure to consult a CPA or other tax professional about whether a sale-leaseback is appropriate for your business circumstances.

Recommended: Online Business Loans: Compare and Apply

Equipment Leasing vs Buying

When deciding on leasing vs. purchasing equipment, look beyond the monthly payment amount. If you need the equipment for only a short period of time, leasing can be a good choice. It may also be practical if the equipment changes rapidly with new technology, like computers or certain medical devices. Leasing gives you the flexibility to upgrade to newer models more easily without worrying about the sunk cost of owning the older version.

Leasing can also be preferable for certain types of businesses where the equipment is large and expensive. For example, farmers may not have the cash flow to support big payments on farm business loans for tractors and harvesters.

However, over the long term, buying is usually cheaper than leasing. If the equipment is unchanging and durable and you expect to need it indefinitely, small business financing may be a more prudent choice.

Recommended: Business Auto Loans: How to Get Financing

Tax Considerations

Given variations in state and local taxes, your lease arrangements could affect your tax bill. Check with your leasing company and your tax attorney or accountant for specifics. Some issues to discuss might include the following:

•  Are your equipment lease payments deductible on your federal or state taxes?

•  Does your state or local government assess tangible personal property taxes on rented or leased equipment?

•  If you have a finance lease, are you considered the owner for tax purposes?

•  If so, can you claim the equipment’s depreciation on your federal or state tax return?

•  If you have an operating lease, can you claim depreciation on your federal or state tax return?

Qualification Requirements

Lease requirements will vary depending on the lessor, but most leasing companies consider things like business history, credit scores, cash flow, and profitability.

With leases and loans, companies with longer track records often get approved more easily than startups. So new firms may want to compare their lease options to possible purchases through startup business loans.

Equipment financing companies, lessors, and lenders can vary in their opinions of acceptable credit scores. Business owners with low credit scores may want to explore bad credit equipment financing options.

Even applicants without high credit scores may be able to qualify for a lease or loan if their company’s finances are strong enough. Evidence from the business’s recent financial documents, such as income statements and tax returns, can boost the chances of approval for a lease or equipment financing.

Payment Structures

Equipment leases may or may not involve down payments. The leases usually offer fixed interest rates for the duration of the contract. The rates depend on your credit, the lease term, and the type of equipment, among other factors.

You can expect to pay other costs when leasing equipment, such as delivery, maintenance, and installation charges; appraisal fees; insurance; and state and local taxes or fees.

End-of-Lease Options

Finance leases, once known as capital leases, generally allow the lessee to purchase the equipment at the end of the term. You may be able to buy it for far less than the fair market value, especially if you had what’s known as a $1 buyout lease.

If you have an operating lease and don’t want to buy the equipment at the end of the term, you simply return the item to the lessor.

Most equipment lease agreements will spell out rules for canceling the lease before the term ends. Operating leases often give you the option of early termination, but you’re likely to be charged a hefty fee.

The Takeaway

Equipment leasing for your business can be practical in many situations, such as when you need the equipment only temporarily or when the technology is upgraded frequently. Leasing equipment is cheaper upfront, as a down payment may not be needed, but over the life of the lease, the total outlay may exceed the purchase price. Lease agreements may affect your balance sheet and tax bill, so consult your accountant or other tax professional before you decide.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What’s the difference between an operating and a capital lease?

Capital leases, also known as finance leases, are designed as a pathway to ownership. Canceling a capital lease can be very difficult and expensive. Operating leases are more similar to rental contracts. You are generally able to cancel the contract early with an early termination fee.

How do I qualify for equipment leasing?

Qualification requirements will vary by the leasing company, but most consider facts like the business’s years of operation, credit scores, cash flow, and profitability.

What happens at the end of the lease?

At the end of many operating leases, you return the equipment to the owner. Capital leases, now known as finance leases, enable the lessee to buy the equipment when the lease concludes.

Can I buy the equipment after the lease?

Many lease contracts give you the option to purchase the equipment at the end of the term, especially finance leases. The price you pay at that time may be the fair market value, or it may be less. If you don’t want to buy the equipment, you simply return it to the owner.

Can I upgrade equipment during the lease term?

Yes, you may be able to upgrade equipment during a lease, depending on the type and terms of the contract. In fact, being able to upgrade equipment easily is a significant advantage of leasing.

Photo credit: iStock/ExperienceInteriors

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q125-005

Many businesses require use of a semi-truck or other specialty vehicles, whether for transporting their own goods, commercial shipping, or taking on shipping contracts for other companies. But commercial trucks can be expensive, and business owners often have to borrow to pay for them. This guide can help you understand what you need to know to finance these purchases.

What Is Commercial Truck Financing?

Commercial truck financing is designed to help borrowers pay for commercial vehicles. One common type, the semi truck, can cost anywhere from $70,000 to $200,000 or even more. So businesses may struggle to purchase them in cash.

Trucking business loans enable the buyer to pay for the truck over the period of the loan, breaking down the hefty cost (plus interest and fees) into more affordable regular payments. To secure the loan, though, you will likely need to put some money down.

If your business relies on cars, vans, or smaller trucks, you may want to look into business auto loans.

Typical Financing Options

Commercial truck loans come in several types. Here’s a look at some of the most common.

Business Loans

A general business loan provides borrowers with a lump sum to fund various business expenses, including purchasing a truck. The borrower agrees to repay the loan over time with interest. For more favorable terms, you may need to offer the lender some collateral. If your business is just starting out, a startup business loan could help you buy the equipment you need to get on your feet.

Business loans are available through traditional banks and credit unions. There are also some specialty lenders who focus on commercial trucks.

Equipment Loans

Equipment financing is a type of small business loan issued for the express purpose of buying business equipment. You can use this type of loan to buy vehicles as well as necessary tools and appliances. As with other business loans, the borrower receives a lump sum, which they agree to repay with interest. The equipment being bought often serves as collateral for the loan.

SBA Loans

An SBA loan is a type of small business financing that is partially guaranteed by the Small Business Administration. These loans are offered through banks as well as private lending companies. In general, an equipment loan that’s backed by the SBA will have a 10-year term.

Financing vs. Leasing

Instead of purchasing your own new or used commercial truck, you may want to consider leasing one. When you lease a truck, you make monthly payments in exchange for its use; your payments don’t go toward ownership of the truck. Depending on specifics, leasing may cost less each month than paying back a loan. Also, leasing may not require a down payment.

That said, vehicle leases may impose mileage limits, sometimes as low as 12,000 to 15,000 miles per year. You’d then be charged a fee for the additional miles. This setup may not work for you if your business requires long-distance hauling or towing.

Recommended: Business Line of Credit

Loan Qualification Requirements

Qualification requirements are likely to depend on the type of loan you choose.

Credit Score Requirements

For small business loans, traditional banks often require a credit score of around 680 or more. An alternative lender may accept lower scores of 500 to 600. You may be able to secure an equipment loan with a score of around 630.

Credit score requirements for SBA loans will vary. For 7(a) loans, your personal credit score should generally be in the 630-to-680 range. SBA 504 loans tend to require a score of 680 or more.

Time in Business

Lenders like to see that your business has a track record of success; a solid business footing suggests you’ll be able to pay back your debt. As a result, lenders may want information about your company’s history. For instance, SBA’s 7(a) Working Capital Pilot loans require that your business have at least one year of operating history.

Down Payment Expectations

Most business loans will involve a down payment, since lenders lower their risk by getting some money up front. You can expect to pay at least 10% to 20% of the loan value. But the amount of your down payment can vary. The larger the down payment you make, the more favorable your terms and interest rates are likely to be.

Revenue Thresholds

A predictable revenue stream helps assure lenders that you have the cash flow to make regular loan payments. Lenders may require a certain level of annual or monthly revenue to approve a loan.

Recommended: How Much Does a Truck Driver Make a Year?

Commercial Truck Loan Costs

With a commercial truck loan, a borrower takes on various costs in addition to paying back the loan principal.

Interest Rates and Terms

Your largest expense is likely to be the loan interest you pay. This is the price your lender charges you to finance a commercial truck. The amount of interest you pay will depend on factors like the type of loan, the amount of the loan, your credit score, and the size of your down payment.

Additional Fees

Your lender may charge several one-time fees when you get your loan. Some examples are origination fees, application fees, underwriting fees, and closing costs. One way to see how fees impact the overall cost of your loan is to look at its APR versus its interest rate. The APR of a loan includes the cost of all fees.

Insurance Requirements

Your lender will likely require proof of insurance to release the funds for your vehicle loan. Ask about their specific requirements before you shop for a policy. You may need extra liability insurance, cargo insurance, and more.

How to Apply for Truck Financing

When you’re ready to apply for truck financing, shop around to various lenders, including banks, credit unions, alternative lenders, and direct lenders who specialize in truck loans.

You may wish to get prequalified by a lender to get a sense of whether you can meet their criteria. You can do it even if you haven’t found the vehicle you want to purchase yet. Or, if you already have a vehicle in mind, prequalification may be helpful when negotiating with the seller.

Documents Needed for Application

When you apply for a loan, have these documents at the ready:

•  Business registration

•  Business income statements and balance sheets

•  Proof of truck insurance

•  Commercial driver’s license

•  Up to a year’s worth of bank statements

•  Three years’ worth of business and personal tax returns

•  Your employer identification number

Tips for Securing the Best Financing

Lenders will offer the best terms and interest rates to established businesses with stable revenue and high credit scores. It is possible to secure equipment financing with bad credit, but it may be tricky. If you don’t meet a lender’s credit score criteria, consider taking action to boost your score. These might include paying down other debts and ensuring your existing loan payments are always on time.

The Takeaway

Semi trucks can be expensive, so many businesses take out commercial truck loans. There are a variety of options for financing commercial trucks, including leasing. Reach out to lenders to find out what their loan requirements are and what terms they might offer. In general, improving your credit score will help you to qualify for the best terms and interest rates.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What credit score do I need for commercial truck financing?

For small business loans, traditional banks will usually require a credit score of around 680 or more. You may be able to secure an equipment loan with a score of around 630. With a lower credit score — possibly as low as 500 or 600 — it may be possible to contract with an alternative lender.

How much is a typical down payment for a commercial truck?

You can expect to pay at least 10% to 20% of the loan value as a down payment on a commercial truck loan.

Can I get truck financing with bad credit?

It is possible to get a commercial truck loan with bad credit, though your options may be limited. Some alternative lenders do specialize in offering loans to borrowers with poor credit.

What’s better: leasing or financing a commercial truck?

The decisions to lease or finance a commercial truck will depend, in large part, on your business needs. For instance, leased trucks may have annual mileage limitations, so if you need to drive farther than the lease allows, it may make more sense to buy.

How long are typical commercial truck loans’ terms?

Loans for commercial trucks typically have a term of one to five years, though some banks and traditional lenders may offer 10-year loans.

Photo credit: iStock/RichLegg

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q125-001

It takes a lot of capital to launch and maintain a restaurant, from outfitting a commercial kitchen in the back of house to incorporating a point-of-sale system at the front of house. Fortunately, restaurant equipment financing spreads out some of these high costs over time, which can really help if you’re opening a new location or responding to an unexpected equipment failure.

Here’s what you need to know about your options for buying or leasing restaurant equipment and how to make that financial decision.

Financing Options

What’s the best way to finance restaurant equipment? There are four primary options available, whether you’re grilling up burgers and fries or serving a curated tasting menu.

Equipment Loans

Equipment loans are available from online lenders, traditional banks, and even vendors who offer in-house financing. Because the equipment is used to secure the loan, you could avoid having to make a large down payment, enabling you to save your working capital for other expenses. Interest rates are usually fixed, giving you the same monthly payment for the life of the loan.

A similar alternative is a business line of credit, which often comes with a variable rate. The other difference is that you can borrow as needed up to your available limit, instead of receiving a lump sum. A line of credit could be helpful if you plan to spread out purchases or want an emergency fund in place for equipment maintenance and replacements.

An equipment loan or line of credit may let you roll in some or all of your soft costs, such as taxes and delivery fees. Equipment leases typically allow for this.

Recommended: Online Business Loans: Compare and Apply

Leasing Programs

Leasing vs. purchasing equipment for your restaurant could save you money. You’re only making payments to cover the lease period, rather than being on the hook for the full cost of the equipment. When the lease ends, you can return the items; if your contract includes a buyout clause, you may be able to purchase the equipment at that time.

Among the drawbacks of leasing restaurant equipment: Your payments don’t add up to any equity in the items, so you can’t resell them or use them as collateral for future borrowing. Also, your long-term costs, including financing charges, could be higher than if you were making principal and interest payments on a purchase loan.

SBA Loans

Restaurants can apply for small business financing that is backed by the SBA, which may have more flexible credit requirements than other loan types. An SBA 7(a) loan allows businesses to borrow up to $5 million from a direct lender. Those funds can be used for a number of purposes, including machinery, equipment, fixtures, and furniture. You do, however, need a 15% to 25% down payment on the loan amount.

SBA 504 loans are another option which can be used for any type of machinery or equipment with a remaining useful life of at least 10 years. The maximum loan amount is $5 million and lenders often require a minimum down payment of 10%.

Working Capital Loans

A working capital loan isn’t specifically designed to finance equipment; you can use the money to cover any needs in your restaurant. The loan term and amounts are usually smaller than for equipment financing that covers larger purchases. So if you need funding to buy smaller appliances or point-of-sale equipment, a working capital loan could be a good choice.

Recommended: Guide to Agricultural and Farm Business Loans

Qualification Requirements

Lenders look at three key factors related to your restaurant as part of the application review process.

Credit Considerations

You’ll often need to go through both a personal and business credit check as part of the application process, regardless of which type of restaurant equipment financing you choose. But there’s no universal credit score requirement; each lender has its own criteria.

It’s even possible to get bad credit equipment financing, especially when the equipment itself is collateral. If you can also offer additional collateral or a down payment, you may have a better chance of getting approved.

Time in Business

It can be difficult to obtain a loan for a new restaurant with no previous revenue history. Typically, you’d need to have been in business for at least a year to qualify, but by comparing multiple lenders, you may find one with more flexible criteria. New restaurant owners can also explore startup business loans to finance their equipment purchases.

Revenue Requirements

Revenue requirements also vary by lender. Many cite minimum annual revenues of $100,000 to $200,000, although you may find lenders who accept less.

The amount you can borrow — and repay — will largely depend on the restaurant’s revenue and outstanding debt. The more cash flow you have, the larger the loan you may be able to handle. Expect to provide financial documents like tax returns and bank statements as proof of revenue.

New vs Used Equipment

When you’re deciding on the equipment you want to purchase or lease, bear in mind that both new and used options have their pros and cons. New equipment can be more reliable, and sellers sometimes offer perks like warranties and rebates. Also, you’ll typically qualify for better financing terms if you choose new equipment rather than used. However, if the new equipment is more expensive, then your overall cost may end up being higher. If upfront prices are your top priority, then secondhand equipment may be a better bet.

Tips for Choosing the Best Financing Option

First, think about whether you prefer to buy or lease your equipment. Buying may be a wiser option if you expect the equipment to last well beyond the term of the loan. Leasing could be preferable if you like to upgrade to the latest equipment every few years.

Next, look at lender requirements and compare multiple options that you could potentially qualify for. Different financing companies typically set up their own terms and loan structures, so you shouldn’t rely on only one quote when making a decision.

The Takeaway

When it comes time to outfit your restaurant space, equipment financing can help preserve your working capital. Government loans are available, as are direct loans and restaurant equipment leases. Lenders typically have requirements for borrowers’ revenue, credit, and time in business.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What credit score do I need for restaurant equipment financing?

Credit score minimums for restaurant equipment financing vary by lender. Lower scores may qualify if you can provide additional collateral or a larger down payment.

Should I lease or buy restaurant equipment?

Whether you should lease or buy restaurant equipment depends on whether you plan to use it beyond the payment term. Lease payments don’t go toward equity in the equipment, but you may still be able to purchase the item after the lease agreement ends.

Can I get financing for used equipment?

Yes, you can get used equipment financing for your restaurant, but the interest rate may be higher. Additionally, the loan term may be shorter since used equipment will likely not last as long as the new version.

What documents do I need to apply?

Lenders require a variety of business documents, including tax returns and financial statements. You may also be asked to supply details on the equipment you plan to purchase and how it will affect the restaurant.

How long can I finance restaurant equipment?

It depends on the expected lifespan of the equipment itself. The maximum is usually in the 10-year range, but some SBA loans have a longer term, especially for heavy equipment.

Photo credit: iStock/Ugur Karakoc

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q125-006