Find The Secret Trick For Low Rates On Equipment Financing Options
Replacing equipment is an inevitable part of running a small business. Sometimes a major piece of a machine breaks down or you need to modernize your tools to improve your output or comply with industry regulations.
Few small businesses have the operating capital to purchase major apparatus outright. Fortunately, there are financing options to help you cover the cost of these expenssive purchases.
Equipment Financing Overview
Working capital loans or other types of small business loans that you secure from the SBA, your bank, credit union, or an alternative lender can be used for a wide variety of purposes, including purchasing inventory and tools.
However, this specific type of financing is limited to acquiring equipment. A loan or lease enables you to procure the apparatus you need for your business operations quickly. You can’t use the funds for other purposes.
How Does Equipment Financing Work?
This financing works in one of two ways: an equipment loan or an equipment lease. Both options enable you to keep your cash reserves free to cover other priorities.
With the loan, you get the money upfront to purchase the tools you need. The apparatus becomes listed among your business assets. You’ll make monthly payments that include interest and principal over a fixed term.
What Kind Of Equipment Can Be Financed?
- Laboratory, medical, or dental apparatus
- Office furniture and fixtures
- Phone systems, computer monitors, printers, and copy machines
- Restaurant furniture and fixtures such as tables, chairs, linens, and catering supplies
- Commercial restaurant ovens, food processors, freezers, and grills
- Business vehicles such as delivery vehicles, food trucks, trailers, and company cars
- Industrial apparatus such as forklifts, industrial mixers, workbenches, and conveyor belts
- Specialized machinery and tools
- Software including CRMs and operating systems
- Point-of-sale payment processing hardware and software
- HVAC units, solar panels, and other green technology collectors
What's The Difference Between Equipment Loan And Equipment Lease?
With a loan, you own the apparatus you purchase. The new supplies and tools serve as collateral on the loan. If you default, the lender can seize this collateral. Typically, you can finance up to 80% of the machine or other devices you may need. Lenders have different criteria and terms, so check around before deciding.
Leasing rarely requires a down payment. Unlike a loan, you don’t own the asset. The advantage of leasing is that you can return the machinery and upgrade to the newest model at the end of the lease period. Leasing is a good option if the apparatus has a short shelf-life.
What Are The Benefits Of Equipment Loans?
- Frees up your cash for other priorities. As you know, apparatus isn’t the only expense you’ll have. If you tie up your cash purchasing supplies and tools, you may not have enough to cover other priorities or cash flow emergencies
- Most lenders offer flexible payment options. You might be able to choose a monthly, quarterly, or seasonal payment schedule. This kind of flexibility makes it easier to manage your cash flow
- Quick turnaround on your application. When you need to replace or repair a vital piece of machinery, you won’t have a lot of time to wait around for lengthy application processes. With a loan, you’ll have the money you need to get your operations back on track
- Tax benefit. Depending on the financing you choose, you may be able to deduct the monthly payment from your business taxes as an operating expense. Check with a qualified tax attorney before making this assumption
How To Find The Lowest Rates On Equipment Financing Options
When searching for the lowest rates on financing, you want to consider the apparatus itself. The amount you finance should correspond to the price of the tools you’ll purchase. The loan term should correspond to the number of years you expect the machine or supply to last. Consider the monthly payment and its impact on your cash flow. Will the revenue produced by the new machinery outweigh the cost of the loan?
The best way to narrow down your search for the lowest rates on financing is to visit a fintech consumer research site. Platforms such as NerdWallet and Business.org provide current reviews on financing options and direct links to specific lenders.
Online lending marketplaces such as Lendio offer a single application process. Your application is matched with lenders that best fit your needs. You’ll then receive offers, placing you in control of securing the best financing deal possible.
How Do You Qualify For An Equipment Financing?
The criteria to qualify is the same as other kinds of small business financing.
- Good credit. Alternative lenders tend to be more flexible when it comes to credit score, but most will still like to see a score in the high 600s
- Business history. Most lenders require at least one year of business operation for a loan. If you’re a startup, leasing might be a better option to get your business up and running
The amount of loan you can secure is tied to the value of the apparatus you finance since it serves as collateral on the loan.
Conclusion
This type of financing enables you to obtain the tools you need to keep your small business competitive and profitable. By financing any supplies, you keep your operating capital free to cover other business objectives. With a loan, you make monthly payments until it’s repaid. In the meantime, the asset belongs to you. With leasing, the machinery is owned by the vendor.
