No matter the type of business you own, small or large, you need some type of equipment. Equipment may play a big role in creating products your customers want to purchase or it just may help your business serve your customers. Whether you are making your first equipment purchase or upgrading, it can be pricey, so financing is your best option to purchase what you need.
What Is Equipment Financing?
The loan amount you qualify for depends on the value of equipment you want to purchase for your business. With some types of equipment financing, the equipment also serves as collateral for the loan, in the case you default then the lender assumes ownership.
The size of the loan should match the price of the equipment you are purchasing, and the term of the loan should match how long you expect to use the equipment. For example, if you expect to use the equipment for five years, you will get a loan with a five-year term.
What are the options?
Small business equipment financing options include the following:
- Term loans
- Specialized equipment loans
- Small business lines of credit
- Small business credit cards
Also, small business owners have various avenues to get the financing for the equipment they need. Consider the following factors below:
- Your personal and business credit scores
- Time in business
- Annual business revenues
- Desired loan amount
- Your preferred repayment terms
Below are the documents need when applying:
- Bank statements
- Proof of identification
- Business tax returns
- Voided business check
- Credit score
- Equipment quote
Term loans are best for businesses with consistent revenue that want to borrow up to $1 million. These loans are repaid over a set period, similar to car loans or mortgages. The standards for approval are higher than equipment loans however it can work to your advantage if you have a high credit score to qualify for a low interest rate.
Equipment loans are best for new business that need equipment financing. This type of loan can be funded in about two business days and get an approval decision within 24 hours or less. If you try getting a loan with a traditional bank, you may wait days and up to weeks for your application to go through. Equipment loans are repayable over a fixed term which range from one to five years and you can borrow up to $5 million and with interest rates as low as 7.5%.
Lines of credit
A business line of credit is best for businesses that want fast and flexible equipment funding. The bank makes a specific amount of money available to you so that you can draw on over and over again. Because they are revolving, you have the flexibility of either using them to purchase equipment or covering any other business expense you may have. Business lines of credit can be repaid over several months or up to five years. Funding can be completed in just a couple days and is easier to qualify for than a business loan as they can approve you with a credit score of 500.
Credit cards are best for owners who want to earn rewards for small equipment purchases. Types of rewards include earning points, cash back or travel miles for your business. A business credit card is a good financing option for emergency expenses or cash flow shortages. You can also use the credit card to purchase supplies or inventory. If you use the card responsibly, it can help boost your business’ credit history which in turn can lead to high credit. Although they are easy to apply for, credit cards have high interest rates and fees.
Now that you are aware about the various options of equipment financing for your small business, there a few benefits associated to it as well.
- Equipment loans usually have the lowest interest rate
- Other types of financing are more difficult to obtain
- Funding is fast
- Funding can be used for all kinds of equipment
- The monthly payments remain the same over the length of the term
- The monthly payments and cost of equipment is often times tax deductible and you’ll enjoy a depreciation tax benefit
Why Should Small Business Owners Choose Equipment Financing?
To run a company efficiently and productively, you need to have the right equipment in order to make your business more profitable. In order to thrive in competitiveness with others in your industry, it’s crucial to have the latest and up to date equipment on the market. Remember to weigh your options carefully to determine what is right for you and your business to help it grow.