Is Equipment Financing Right for You?

It is a fact that loans are getting harder to obtain, especially for small businesses. Issues with obtaining equipment financing is the problem that prevents companies from growing or even starting. Today, business owners have no choice sometimes to use financing options that have high interest rates. These risks might be worth it because if the company does not provide more competitive products then the company might not survive.

When Do You Need Equipment Financing?

Equipment financing is the financing your company uses to purchase equipment. The methods of equipment financing include government loans and different types of leasing. Today businesses have to extend this list because the options are insufficient.

Businesses of any size may require equipment financing not only when the company forms and builds its initial set up but also when there are upgrades needed for the equipment. Equipment financing is necessary in the following situations:

• Your business needs to expand so that it can meet the increasing demand or not miss some opportunity.
• Your company needs to improve its products or services to make them more competitive so you can stay in business.
• You have reached a point when the business needs to evolve to a new level. You notice that your revenue has been high consistently and it shows the potential of growing.
• Your equipment you currently have got damaged or broke down.

Speed is important in many cases when businesses need equipment financing because without it, they might suffer severe losses and miss important opportunities. The chances of the business surviving is small.

If you are not in rush to get financing, securing some type of loan may be the only way that our company can get any equipment at all. The majority of small business in the industries that require heavy machinery and equipment have limited cash flow.

Challenges and Solutions for Equipment Financing

The first places that the majority of businesses turn to are banks and government financing programs. These are of then the last stops for those business owners because securing a loan is very difficult form these sources.

Financing programs also have high eligibility requirements, so they are impossible for many businesses to obtain. This type of financing takes a while to go through so if you are looking for quick funding, you might not benefit from these loans even if you are eligible.

Small businesses are considered extremely high-risk, so banks and credit unions are reluctant to work with small business owners. Due to that fact, they require collateral in order to minimize risks. The problem with this is that small businesses often times do not have much collateral to offer.

These two options are not the only types of financing available today which gives business owners new opportunities. Many people choose credit cards and other types of equipment financing that are instant. These options are not marketed as “equipment financing” but can be used for whatever purpose that you need. This means you will get more flexibility as you are not restricted by the type of items you can purchase with the money you get. This gives you a chance to make several improvements to your business to achieve results faster.

The problem with financing options is that they are all designed for short-term loans. These have high-interest rates which is why many business owners ignore these options by default.

It is important that you also ask yourself if you can afford to pay for the equipment you need right now. Not investing in the equipment and some other upgrades or replacements will lose you clients or an opportunity to move up to the next level in your niche, how much you will lose, and if your business will survive at all.

Is High-Interest Equipment Financing Worth It?

Taking out a high-interest short-term loan for something that will not pay off within a couple months is risky. You need to consider equipment financing carefully and do some calculations before making the decision.

The following questions can help you make the right decision:

• The types of financing you are eligible for?
• How fast you need the equipment?
• What kinds of losses will you have if you do not have the equipment you need?
• How much will you pay in interest for every loan considering your projected revenue?
• Can you refinance the high-interest loan in the future or obtain something more favorable to pay off the debt?

You need to decide if high-interest loans are worth it to use for equipment financing depends on risk assessments. Consider what will be the biggest risk, not obtaining the equipment or getting high interest rates. There is no doubt that you will lose a lot of money but if your company’s survival and growth is at stake, taking that risky step might be the only solution.

Do not forget that this type of financing means that you will be the owner of the equipment. If something happens, you will be able to sell it in order to settle some debts.

The Bottom Line

There is no easy answer for a business owner who is looking for equipment financing. You have lots of options but the best of them might be out of reach. You need to consider your needs and abilities so you an make the best decision about getting a less favorable type of loan to use as an immediate solution.