Is Business Equipment Financing Right for Your Business?

Equipment is costly and can take a toll on your cash flow. Luckily, equipment financing can help. It can provide you the funds you need to cover the expense of your equipment. In this post, we’ll review what business equipment loans are and how they compare to other business funding products.

What are Business Equipment Loans?

Business equipment loans are designed to help business owners purchase equipment for their business. From landscaping to restaurants, any business that requires equipment will find equipment loans beneficial so you can run your business smoothly.

If you take out an equipment loan, you will get a lump sum of money upfront that is a percent of the equipment’s cost. You’ll repay the business loan with interest via periodic payments. The equipment will serve as collateral against your debt, so if you default on your loan, the lender will seize it.

Pros and Cons of Equipment Financing

Equipment loans come with pros and cons just like every other type of financial product.

Pros of Equipment Loans

  • Easy to qualify for: if you have no credit history or a bad credit score, you can get approved for an equipment loan.
  • Fast funding: if you need to buy or update equipment, you’ll be pleased to learn that the most equipment loans offer fast funding, sometimes within 24 hours or a few days.
  • Reduces cash flow issues: with equipment financing, you will spread the cost of your equipment over time and be able to avoid cash flow shortages that impair operations.
  • Reduces cash flow issues: with equipment financing, you will spread the cost of your equipment over time and be able to avoid cash flow shortages.
  • Boost future sales: it can help you get more customers and increase sales.
  • Save on taxes: it can cut your tax bill as most equipment purchases are tax deductible.

Cons of Equipment Loans

  • High rates: you might have to settle for a higher interest rate than you would be able to land with a different type of loan.
  • Down payment: some lenders might ask you for a down payment.
  • You can only use it for equipment: equipment loans are only used for equipment for your business and nothing else.
  • Risk of losing equipment: if you fail to repay, your lender can seize the equipment.
  • Equipment can become outdated: your equipment might be outdated by the time you pay off your loan.

Are Equipment Loans a Good Option?

To help you answer this question, you need to ask yourself the following questions.

  • Do I need a term loan to purchase equipment? If you find that you want working capital to cover other business expenses, an equipment loan won’t help you. Its funds can only be used to pay for business-related equipment.
  • How long will I use the financed equipment and what will I do with it after? You may be better off leasing equipment if your financing contract exceeds the amount of time you plan to use the equipment.
  • How soon do I need the funds? If you need the money sooner rather than later, you’ll have to explore business equipment financing options and find a lender that can meet your preferred time frame.

The Bottom Line

Equipment loans are a great choice if you want to buy a piece of equipment for your business but don’t want to pay for it upfront. Before you move forward with the loan application process, do your research. Compare the options and read the fine print.