What Is Equipment Financing [and How Can It Help Your Small Business]?

What happens if you want to start a business but do not have the funds to buy the necessary equipment?

Equipment financing may be the answer you’re looking for. This process will help small businesses acquire the tools that they need to succeed.

If you want to know more about financing your business equipment, keep reading!

What is Equipment Financing?

The equipment financing service means you receive a loan or a lease to afford your business equipment. ‘Equipment’ can mean a range of things, from the car you use to transport your products all the way down to the machinery.

If you receive a loan, you will have to pay the lender back periodically over a given amount of time. Once you have paid them back in full, the equipment will be yours for the keeping. Loan terms vary depending on factors such as your repayment ability, the cost of the machinery, and more.

Typically, the loan can last from a few months to a few years.

On the other hand, you can choose to rent equipment instead. This means that you don’t actually own the materials. You will instead pay the owner regularly to gain access to the equipment.

Differences Between Equipment Financing Loans and Bank Loans

An equipment financing loan seems to function the way other loans do, so what makes it different from a traditional bank loan?

The first difference is that a bank will usually require collateral when you take out a loan. However, this is not always the case with an equipment financing loan. The equipment usually ends up functioning as collateral, so you don’t have to risk losing more in the process.

A bank loan’s interest rates may be more volatile in general. You can instead negotiate more with private lenders or scour the net for more options when applying for an equipment financing loan. In this way, there is more flexibility with equipment financing as well.

 

Choosing the Best Way to Finance Equipment

When it comes to choosing the right equipment financing loan, there are many factors to consider. These include:

  • Your personal credit score
  • Your business credit score
  • Annual business revenue
  • Amount you need to borrow
  • Repayment conditions

Your personal and business credit scores will determine the loans that are available to you, and the requirements that the lender will look for. The other factors will narrow down the choice of lenders based on their specializations.

Benefits of Equipment Financing

There are plenty of methods for you to afford your business expenses, but equipment financing is a particular popular choice among small business owners. So what makes equipment financing stand out? Here are some possible reasons.

It Saves Money

The first and possibly most important benefit of equipment financing is that it saves money. Who wouldn’t want that?

Paying for costly equipment when starting your business can seriously strain your finances. It is also difficult to predict the future, so you don’t know when you can receive a positive return on your investment.

By using equipment financing loans or leasing, you free yourself from that financial responsibility. This makes you more adaptable to different circumstances.

You Can Afford Better Equipment

What happens if you have to upgrade your equipment every now and then? The best way to do this while remaining financially stable is with an equipment financing agreement. This way, you can ensure that your equipment has the latest upgrades.

This allows you to maintain the productivity of your business’s machines, which will allow your business to operate successfully.

You Can Receive 100% Financing

In a lot of equipment financing options, you can actually receive 100% financing for your equipment. Sometimes you don’t even need a down payment!

The flexibility of equipment financing means that you can go through different options to see which loan works best for you. You can also directly negotiate with the lender to get a good deal.

It is Quick and Convenient

Equipment financing applications tend to need less time to get approved, especially compared to traditional bank loans. This means that you can have access to the finances quickly and can start immediately with your business.

The flexibility of equipment financing means that you can also tailor the financing option to your specific needs.

Equipment Loan vs. Equipment Financing Lease

Leasing may be more attractive for you if you don’t want to own the equipment. It’s also likely going to be less expensive in the short term.

Leasing is also a potentially good idea for objects that are constantly upgraded. This way, you don’t have to hold onto obsolete machinery.

In the long term, however, it may be easier and cheaper to buy the equipment if you know you will stick with it. The main benefit of getting an equipment loan is that you get to own the equipment in the end. You don’t have to continue a permanent payment cycle for as long as you’re using the machine.

Getting an Equipment Financing Deal

Overall, equipment financing is an attractive choice for small business owners who don’t have enough capital to afford machinery outright. You can choose between having an equipment loan, or an equipment lease.

Equipment financing benefits you because they tend to have 100% coverage, are convenient, save you money and allow you to upgrade equipment quickly. When choosing between a loan and a lease, you may want to consider whether the equipment is easily obsolete.

What are you waiting for? Contact us for an equipment financing option today!

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