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    Looking at Affordable Equipment Financing Options For 2020

    Thanks to the great number of small business equipment financing solutions, your business can procure everything from laptops for an office to equipment for a farmyard without the need to buy the equipment outright. Instead, you only need a small down payment and you loan the rest from a lender like a bank or an online provider. 

    Equipment financing is a great solution for businesses that cannot afford to pay for all of their equipment up front. It’s also great for businesses that want to preserve their cash flow. You should consider equipment financing if you need to replace old equipment, update old equipment, or add to your existing inventory. In this guide, we’ll tell you everything you need to know about equipment financing and how it’s different from equipment leasing and other equipment loans.

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    What is Equipment Financing?

    With equipment financing companies, you make a downpayment for the cost of the machinery. Then, an equipment leasing company or loan company will pay the remaining balance and you pay them back in installments (including interest payments) over a period of time. The amount of money that your lender gives you is secured by the piece of equipment being purchased. This means that, if you fail to make payments or default on payments, the item you purchased is taken away. As equipment financing is a form of secured loan, it’s easier for businesses with a poor credit rating to obtain the loan, because the lender knows they can use the equipment as security.  Equipment financing is common - and it’s so widely offered that even US bank equipment finance is available. As well as traditional lenders like banks, equipment financing is also available through non-traditional lenders such as online providers.

    How Does Equipment Financing Work?

    Business equipment financing is usually viewed as a cost-effective and lower-risk way to acquire machinery than other forms of financing. Plus, with heavy equipment financing, you get to maintain your cash reserves because you don’t need to purchase the item outright.  Each lender who offers equipment financing and small business equipment loans will have different terms, but you can usually finance around 80% of the asset’s total purchase price. Generally speaking, you pay the initial 20% of the cost and then repay your lender over the term of the agreement in regular payments. The amount you borrow will usually determine the length of the loan. 

    Who Qualifies for Equipment Financing?

    Commercial equipment financing and industrial equipment financing solutions are available to most businesses that use some form of equipment. The term "equipment" in this scenario can take many forms, including everything from farming machinery to computers.  However, different lenders will have different qualifying criteria. In most cases, you’ll need to prove that you have a credit rating of over 600 and the ability to service your equipment loan or lease.

    How to Apply for Equipment Financing

    Applying for equipment loans from equipment financing companies is relatively straightforward, but you’ll still need certain documents and information:

    Voided Business Check

    Your lender may ask to see a voided business check to confirm details relating to your account. You can do this by writing "VOID" in big letters across a check and sending it either through the post or in a photo. 

    Bank Statements

    Some lenders will also ask for bank statements so they can verify the financial information you’ve provided to obtain the loan. 

    Credit Score

    Your credit score may affect the terms of the loan you’re offered. Generally speaking, the higher your credit score, the lower the interest rate you’ll be offered and the more likely you are to be accepted for equipment financing. 

    Business Tax Returns

    Like your bank statements, your tax returns can be used to verify financial information.

    Equipment Leasing Option

    Equipment leasing is a popular alternative if you don’t have the downpayment that you often need for a loan. Plus, when leasing, you also usually pay less in terms of shipping and installment costs compared to equipment financing. Leasing is also popular with companies that regularly switch out their equipment for new and updated versions. With leasing, instead of buying the equipment, you borrow it, and the lender always maintains ownership. If you do want to own the equipment, then some equipment leasing companies will offer the option for you to buy the equipment for a fixed price at the end of the term, but you’ll need to negotiate this before you sign.

    Equipment Financing vs. Equipment Leasing: What’s the Difference?

    Business equipment leasing works in a similar way to equipment financing. But the crucial difference between small business equipment financing options and vendor leasing products is that leasing only effectively allows you to borrow the machinery in question. Once you’ve paid off an equipment financing loan, you then own the piece of equipment. By contrast, at the end of a leasing agreement, you usually have the option to renew your lease, return the equipment or pay a set amount to buy the equipment from the leasing company.

    Equipment Financing for Items Under $50,000

    If you’re buying a piece of machinery or equipment that costs under $50,000, then you’ll find some companies that specialize in offering small business loans specifically for this reason. Generally speaking, the maximum repayment term for a loan of this size is six years, and interest rates are between 8% and 13%. However, this will depend on your creditworthiness and the lender you choose, so check your terms carefully.

    Equipment Financing for Items $50,000 and Over

    If your item costs over $50,000, you’ll still have plenty of options when it comes to getting a business loan. In fact, some of the best small business loans allow you to borrow up to $2,000,000, depending on your creditworthiness and your business’s performance. For a loan of this size, you’ll usually need a good credit history and evidence of your business’s growth plans.  If a traditional bank won’t provide you with a loan of this size, try an online lender.

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    The Benefits of Equipment Loans

    Quick Approval

    With equipment financing, you can get the equipment you need quickly. Depending on the lender you use, you may even have your funds in your account on the very same day.

    Tax Deductible

    If you use your new machinery or equipment purely for business purposes, then you’ll usually receive tax deductions because you can write off your repayments as an operating expense. But you should always check with your tax advisor, to make sure.

    Flexible Payment Schedule

    Any payment scheme will depend on the lender you choose, but many offer flexible payment schedules that can be monthly, quarterly, seasonal, biannual or even annual.

    Approximately 25% of "Soft Costs" Covered

    Many so-called "soft costs" are covered as part of your financing agreement, so it’s often cheaper to ship and install the equipment than if you bought it outright.

    3 Main Steps to Get an Equipment Loan

    Good credit

    Bad credit will work against you when you apply for equipment financing, so try to improve your credit score before you apply.

    Solid business plan

    A traditional lender, such as a bank, will often want to see a business plan before they lend you money, so they can estimate what the future of your business looks like. Your business plan should include details on your business’s products/services, your cash flow, and your plans for future growth. A good business plan will demonstrate that your business is well managed and well thought out.

    Cash flow statement ready

    Having a cash flow statement ready is critical for securing a loan from some lenders who want to see how much money you have coming in and out of your business. If you’re unsure of how to make your finances look more appealing to lenders, then hire an accountant to help you.

    Main Terms of Loans for Equipment Financing

    • Repayment terms from six months to five years

    • Borrowing limits up to $500,000

    • Interest rates ranging from 7% to 36%

    Equipment Financing for Bad Credit

    If you have bad credit then there’s no need to worry, because equipment financing can be a good alternative to bad credit business loans. Equipment financing for bad credit can be challenging, but you can also work with a co-signer or make a large down payment if you want to increase your chances of your application being successful. Outdoor machinery often breaks down at the worst possible time, so if you’re looking for tractor financing for bad credit individuals, then it’s important you know most lenders will understand the struggles you face as a small business owner. The same goes for semi truck financing for bad credit individuals and dixie chopper financing with bad credit, as well as other forms of equipment financing.

    Conclusion

    Whether you’re looking for semi truck financing, trailer financing or anything in between, equipment financing solutions are a great alternative to traditional loans. These equipment loans often reach your account far quicker than other forms of lending, meaning you can replace your broken machinery or upgrade to a newer option without delay. Plus, equipment financing can also help you preserve your cash flow, save you money on soft costs and help make your tax more efficient. If you don’t believe that equipment financing is right for you because you don’t want to own the equipment or you don’t have the money available for the downpayment, then consider equipment leasing as an alternative.

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