Small Business Equipment Financing |
Every entrepreneur understands the importance of implanting the latest equipment and most state-of-the-art machinery for business growth. This includes everything – ranging from trucks and other vehicles to heavy machinery, from data processing tools to computers, office equipment, and everything else in between.
Regardless of your business type and size, or from which industry you belong; purchasing advanced machinery and business equipment to meet your company’s bottom line always needs a high amount of working capital. And that’s where Equipment Financing comes to the forefront.
Summary Of Equipment Loans
· Equipment Loans stand for credit or funds, allotted to buy business equipment or any tangible asset for business operations
· Equipment funding can be obtained for purchasing machinery or leasing them from other vendors
· Whether buying or leasing, the loan amount depends on the value of the equipment being financed
· The interest rate for Business Equipment Loans depends on the borrower’s financial ability to acquire the credits at favorable terms
What Is Equipment Financing?
Business Equipment Loans are similar to other kinds of business loans, but with some specific restrictions and guidelines. It is basically a kind of small-business loan, specifically allotted to small companies to purchase tools, machinery, and equipment required for the business operation.
The necessary working capital allotted under this segment is intended to help businesses meeting their end needs and run smoothly. With the Business Equipment Leasing amount, business owners can purchase anything kind of machinery and tools, right from office furniture to farm gears, from commercial ovens to commercial vehicles.
The equipment purchased with the loan amount often acts as the collateral for the Equipment Loans. It means, as long as the loan is not fully compensated; the purchased equipment won’t be legally yours. You can access and use them, but you can own them.
If any default arises for any reason, the purchased machinery and tools will be used as the collateral and the outstanding loan amount will be secured with the machinery. However, it ensures a flexible repayment of Equipment Financing for Startups to ease the process.
Equipment Financing Interest Rates
The amount of Business Equipment Loans depends on the value of the machinery you are buying. As the equipment acts as the security for the credit amount, the value of the loan should be equivalent to the price of the tools you’re investing in.
The standard interest rates for Equipment Financing range between 8% and 30%. How much interest rate you’ll pay, depends on the credit scores you have, your business revenue, and exitance of your company, and the value of the equipment you’re buying.
Companies with time-honored existence, excellent market reputation, and steadfast financial position can get an interest rate below 8%, whereas the interest rate for Equipment Financing for Startups will have higher values. The higher the credit score is, the lower the interest will be for your company.
Equipment Financing Pros and Cons
Equipment financing can be used to cover all types of business operating expenses – from buying high-value commercial vehicles to office furniture and large machinery. However, alongside several advantages, it also accompanies some shortcomings for the business owners. Let’s find out the major pros and cons of Equipment Financing!
Pros of Equipment Financing
· Less upfront fee for equipment repair, purchase, and lease
· Greater flexibility on repayment & prepayment than other small business financing options
· No need for extra collateral
· Flexible & lowest interest rate
· Once the loan is refunded, the equipment will be outright yours
Cons of Equipment Financing
· Loan amount usage is restricted to equipment only
· Until you repay the loan amount, you can’t own the machinery
· For new business owners, the interest rate will be higher
· Limited loan availability for startups
· It demands a high initial down payment
Equipment Leasing Option
Many vendors and funding companies are there to offer Business Equipment Leasing facilities as a financing alternative – to both small and large-scale companies. Equipment leasing for a limited time is likely a preferable option to minimize the upfront costs and maximize the outputs.
For example, heavy machinery and everyday use tools get obsolete and become less valuable and less productive with time. Thus, instead of buying it on high-interest finance, leasing it for a limited period can be a smarter and more sensible move.
Reasons To Consider Equipment Leasing
Leasing, instead of financing to buy the whole range of machinery for business operations can be a reasonable option for companies with low operational budgets and lower upfront investments. There are many reasons why you should consider Equipment leasing options before financing.
First, lending credits to purchase equipment may not be approved if the financial stability of the borrower is not credible or if he/she can’t cover the required amount for the down payment. Especially for startups and new business owners, getting the loan sanctioned can be challenging.
Second, leasing is way less expensive than obtaining a mortgage to buy machinery. It is highly beneficial, especially for short-term loan requirements. Equipment Leasing needs no down payment and also doesn’t include any large amount of interest. It is easier to obtain and quicker to repay.
Find Out If Business Equipment Loans Are Right for Your Company
Just like every other type of business financing, equipment loans also vary a lot in terms of guidelines, specifications, repayment structures, and timelines. However, it is dedicated for a very specific purpose – to repair, purchase, or lease business equipment or machinery.
The specified purpose of the loan prevents it from being flexible and versatile. To land on the right decision of applying for Business Equipment Loans or not, find out how effective the loans will be for your business operations and if you can repay the interest rates on time.
Take enough time to do research, understand your business needs, define your goals, and determine which type of equipment you need to be financed. That way, it will be easier for you to get onto the right decision. Taking practical advice from professional business loan consultants will also help.
