Your Asset Guide to Business Equipment Financing
Do you know that 70% of businesses rely on equipment financing to acquire assets? From office furniture to computer hardware, the right business equipment ensures that your small business runs at peak efficiency.
It may be stressful to acquire business equipment. You may lack the capital to invest in business assets, especially if your sales are yet to pick up.
Luckily, business equipment financing options ensure that you don’t postpone buying crucial equipment. Being short of funds isn’t a problem.
Here’s an in-depth look at what business equipment financing entails and what to consider when choosing equipment financing.
What Is Business Equipment Financing?
Equipment financing is a form of funding that enables small businesses to buy or lease the assets they need for day-to-day operations. In most cases, equipment financing has fixed interest rates. Borrowers have to make monthly payments to the lender.
Most business lenders offer business equipment loans through online or traditional platforms. The loan amount you get from these lenders will vary depending on the cost of the asset you intend to acquire.
The lender will require that you secure the loan using the equipment you intend to purchase. If you default on payment, it will be easy for the lender to reclaim the collateral and sell it to cover the losses.
What Equipment Financing Options Are Available?
There are various equipment financing options you can choose from. Here are two standard options you need to be aware of.
This option allows you to get a loan from a lender of your choice. Your choice will depend on factors such as creditworthiness and borrowing terms.
You can get a business equipment loan from credit unions, online lenders, or credit unions.
Focus on understanding the lender’s terms before settling on a loan provider. Such consideration will protect you from unfavorable terms that may lead to bankruptcy.
In this option, a lender buys equipment and leases or rents it to you for an agreed monthly fee.
Most dealers in equipment will lease them by following an in-house approach. The dealers can also work with trusted leasing companies.
Whichever approach the dealers use, they will always make it convenient to lease equipment.
It is better to lease equipment with a shorter usable life. Instead of disposing the obsolete equipment, you can return it and get another lease for more current equipment.
What to Consider When Choosing Equipment Financing
Different equipment financing companies have distinct requirements. However, there are standard guidelines you can follow when getting a business equipment loan. They include:
Evaluating Your Business Needs
Before settling on any equipment financing option, evaluate why your business needs the financing.
Ask yourself questions like, “Is the equipment vital in staying ahead of competitors?” How will the equipment enhance your business’s operations? Will the equipment yield any cost efficiency?
Answering these questions will help you judge the viability of equipment financing. The answers will also help you make an informed decision on whether to go for a business equipment loan or lease the equipment.
Sometimes, getting new equipment for your business may not be the best option. Evaluating your business will ensure that you don’t acquire unprofitable equipment.
Reviewing Eligibility Criteria
Eligibility requirements will differ between different equipment financing companies.
Therefore, it is necessary that you compare the criteria for different financiers. This will help you understand whether you will have access to an equipment loan at a competitive interest rate.
In business equipment financing, lenders will consider various eligibility factors. For example, they will consider the industry in which your business operates. The rationale for industry consideration is that some sectors carry more risk than others.
Lenders will also judge your eligibility based on how long your business has been operating. The longer you have been in business, the easier it will be to get an equipment loan.
If your business is a start-up, the equipment financing company will ask for proof of sufficient cash flow. The lenders may also require you to make a larger down payment.
The financiers will also be interested in your credit scores. Therefore, before you approach lenders for a loan to purchase assets, check both your business and personal credit scores.
Understanding the scores will assist you in evaluating the odds that lenders will approve your loan request.
Understanding the Underlying Costs in Equipment Financing
Borrowing an equipment loan may carry other costs in addition to the agreed interest.
You may incur additional expenses in origination and application fees. Some equipment financing companies will also require you to make a down payment.
When choosing an equipment financier, it is good to compare various lenders to determine the most reasonable overall financing cost.
Comparing Equipment Financing Institutions
Some lenders will have better terms than others.
To leverage the offer of the best equipment financing company, review various lenders. Compare their loan repayment terms, interest rates, and financing options.
Your focus should be on finding a lender that provides your preferred financing type at the most competitive interest rates. Comparing the financiers will also help you choose a company with repayment terms that suit your cash flow.
It is also vital to choose a lender experienced in your line of business or your preferred equipment.
Don’t Rule Out Leasing Equipment
Sometimes, leasing equipment may be more feasible than buying it. Leasing may also be less costly as you will not incur the upfront expenses of purchasing assets.
A key factor to consider when making the buying-leasing decision is the length of time you plan to use the equipment.
If you need the asset for only a few years, leasing may work out better for you. There are various companies offering leasing services depending on your line of business. If you are in the U.S. construction industry, this service may be one of the best options to rent all the equipment you need.
Leverage Equipment Financing to Grow Your Business
Business equipment financing can give your small business a head start. Such financing will help you purchase or lease the business assets you need to strengthen your competitive edge in the market.
You can check out more pieces in the blog for more informative content.