Quality equipment play a vital role in your small business success. They make a vital contribution to long-term revenue and profitability. Also, they enable you to enhance the quality of your products so charge and maintain higher prices. Whether you need a hi-tech machine, office furniture, computers, or any other type of equipment to take your business to new heights, you’re going to need some money to convert your wants into demands.
What if you don’t have enough funds to buy everything on your wish list? Plenty of SMEs faces this dilemma every single day.
Fortunately, there is an alternative small business financing option available that will help business owners to buy all the equipment they need, all through Equipment Financing.
Table of Contents
- 1 What is Equipment Financing?
- 2 Features of Equipment Financing
- 3 Qualification Requirements
- 4 How to Apply For Equipment Financing?
- 5 Documents you need before applying:
- 6 Why Consider Equipment Financing?
- 7 Advantages of Equipment Financing every small business owner needs to know
- 8 Situations You Can Use Equipment Financing For:
- 9 How Does Equipment Financing Work?
- 10 How Much Does an Equipment Financing Cost To Businesses?
What is Equipment Financing?
Equipment financing is a type of business financing used to provide companies with the capital to purchase needed equipment. You can borrow or purchase all the latest tools and technologies or upgrade an existing one by applying for equipment financing. You can acquire everything from tables to computers, trucks, heavy machinery or virtually any other equipment for your business.
The asset purchased acts as a security or collateral for the loan. As long as the loan is repaid promptly, you can use and access the equipment. If you default on your loan, the lender can repossess the equipment to cover the outstanding amount of the loan. The best thing about this loan is that it helps you finance up to 100% of the new or old equipment for your business.
Features of Equipment Financing
Requires no collateral, equipment act as collateral against money borrowed.
The expected life of the equipment
Hassle-free loans approve within 48 hours
Qualifying for equipment financing is super easy. The application process is quick and approval does not take more than 1 or 2 business days. Moreover, there is no need to have perfect business credit, nor to pay any collateral. Within a matter of 48 hours, you can have access to the funds to buy the necessary equipment to run your business smoothly.
Though the qualification criteria for these types of small business financing vary from lender to lender. If your business fulfills the following minimum requirements, then you should seriously consider applying for equipment financing:
Must be in operation for six months to two years
Must be in between $25,000 to $150,000
No collateral required, the equipment purchased itself serves as collateral.
A minimum credit score of 550 to 640
5% to 20% for borrowers with good credit
While these above factors play an important role in getting equipment financing for your small business, it’s not the only thing considered when making approval decisions. Depending on the lender, many different things can affect your eligibility. So, it’s vital to discuss your requirements with your lender and determine what works best for your small business.
How to Apply For Equipment Financing?
You won’t have to put much effort and time to apply for equipment financing. Since the application process varies lender to lender, it’s a great idea to research different equipment loan options before finalizing one. However, make sure you don’t apply to more than one lender at a time as it can hurt your personal and business credit scores.
When applying for equipment financing, the lender will typically:
- Ask you to fill out an application
- Request tax returns and bank statements to prove the credibility of your business
- Ask about the equipment you’re purchasing/an equipment quote
- Request a background or credit check
Documents you need before applying:
- Driver’s License
- Voided Business Check
- Bank Statements
- Credit Score
- Business Tax Returns
- Equipment Quote
Why Consider Equipment Financing?
According to Equipment Leasing and Financing Association, “nearly 8 in 10 U.S. companies (79%) use some form of financing when acquiring equipment, including loans, leases, and lines of credit (excluding credit cards).” Equipment financing can prove beneficial when it comes to needing important tools or technology for your business in a short amount of time. Most businesses need equipment to operate their day-to-day operations – from basic tech devices like computers and cell phones to more specialized machinery like trucks, manufacturing equipment or hydraulic lifts.
Advantages of Equipment Financing every small business owner needs to know
- Usually, proceed quickly and easily
- Limited paperwork is required
- No down payment on 100 percent financing
- Both startups and established businesses can qualify
- Since equipment serves as collateral, you can qualify if your credit rating lowers the perfect
- Flexible loan options are provided to repay the amount as per their convenience and budget
- Interest rates are often reasonable
Situations You Can Use Equipment Financing For:
You can use equipment financing to purchase a variety of business-related items. Below is a few common types of equipment that can be financed with an equipment loan:
- Office-related expenses like furniture, fixtures, and appliances
- Agricultural or farming equipment
- Trucks, tractors and other business vehicles
- Manufacturing machinery
- Restaurant’s kitchen items such as ovens, fryers, and freezers.
- Medical imaging equipment
- Construction equipment
- Technology upgrades like bookkeeping software or payment processing solutions
How Does Equipment Financing Work?
As a small business owner, you’ve likely heard it over and over again that it takes money to make money. If you don’t have sufficient funds to buy business equipment, you can’t bring in more revenue and grow your business.
So how you can afford it?
Here’s how equipment financing can help you bring out the best of your business.
The fundamental is pretty simple. When your business needs a certain piece of equipment, then first you contact lenders or equipment financing company to inquire about their equipment loans. After verifying bank statements, credit history, business revenue, and other important documents, you’ll be provided with a lump sum of money to purchase the needed equipment under the agreement that you make regular payments until the loan plus interest is paid off.
The interest rate, length of the loan, and loan amount depend on the type of equipment you need, how much it costs, and its expected lifespan. These loans do, however, come with a fixed rate of interest rates from 8% to 30% – with set term lengths, so you can expect the same payment every month.
How Much Does an Equipment Financing Cost To Businesses?
Rates to finance equipment depend on the following factors:
- The price of the equipment
- Lender or equipment financing company
- The age of the equipment you’re buying
- Your business credibility
- How long you have been in the business
When applying for an equipment loan, you’ll need to come up with an initial percentage of the cost upfront. Also, you’ll have to pay the remaining 80% of the amount plus interest in regular installments, just like any other loan.
For example, if you’re starting a digital marketing company you will need a significant amount of equipment including computers, furniture, mobiles, and a coffee machine. Let’s say the equipment cost a total of $20,000. The lender approves your application and offers an equipment loan equal to 80% of the equipment’s cost, i.e $16,000, but they charge you a 10% fixed interest rate over a 4 year (or 48 months) term.
In this case, you’ll have to fork out $4,000 upfront and pay the remaining $16,000 +$1600 interest over the agreed term. This way your $16K piece of equipment will cost you $41,600, with a monthly payment of $866.6.
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