Equipment Financing

Most operating businesses requires equipment. Whether you’re a graphic designer who needs a laptop with specialized software or the owner of a construction company who needs excavators, dump trucks, and graders to get the job done, it will require money to keep your business equipped.

 

Equipment financing can help cover the expenses related to your business operations. The smallest of these loans can be $5,000, while the maximum amount can go all the way up to $5,000,000. This wide range of loan sizes makes it possible for you to target just the right equipment for your business.

 

These products can be a great financing option when you need money in a hurry, as the funds can hit your account in as little as 24 hours after approval. The interest rates on equipment financing can start around 6%, with repayment terms ranging from 1-5 years.

 

Most lenders will seek collateral for the loan, though the unique structure of equipment financing makes it so you won’t need to risk personal assets such as a vehicle or home. Why? Because the equipment you’re buying will serve as the guarantee on the loan. As long you make your payments, you’ll be in the clear. If you were to default, the equipment would become the property of the lender.

 

Given their borrower-friendly timelines, don’t be surprised if you pay more for a short term loan than you would for a standard-issue loan product. The interest rates often begin around 12%, but it all depends on your unique situation. Repayment is conveniently handled via an ACH debit on a weekly, semi-monthly or monthly schedule.

 

There can be substantial prepayment discounts on short term unsecured loans. Additionally, your payments can build business credit and the interest can be tax deductible. Be sure to consult with a financial advisor on the best way to deduct the interest when it’s time to file your taxes.

 

What Is Equipment Financing?

Equipment financing is a popular form of financing for equipment-heavy industries such as construction and farming. There are generally 2 options for equipment financing: either a loan or lease. The primary difference between the two occurs at the end of term:

 

With a loan, you own the equipment at the end of the term.

 

Leasing is preferred by some business owners, as it allows you to effectively rent the equipment for a set amount of time and then have the option at the end of the lease of either returning the equipment, renewing the lease, or purchasing it. This can be an effective approach for equipment that would otherwise be too costly to purchase outright or that has a shorter usage window.

 

It’s important to consider all your options and then decide whether seeking an equipment loan or lease will be more beneficial for your business.

 

Using Equipment Financing

It’s worth noting that equipment financing isn’t limited to just heavy machinery. Sure, we often think of forklifts and backhoes when we hear the words “equipment financing.” But you can also use the funds for much smaller purchases.

 

Examples include:

 

  • Telephone systems
  • Solar panels
  • CRM software
  • Bookkeeping software
  • Payment processing systems
  • Operating systems
  • Stand-up desks
  • Office chairs
  • Tile flooring
  • Carpet
  • Microwaves
  • Filing cabinets
  • Cubicles
  • Shopping carts
  • Cash registers
  • Scanners

 

As you can see, nearly anything that’s “equipping” your business for success can fall within the scope of equipment financing.

 

Applying for Equipment Financing

It’s not too difficult to qualify for equipment financing. If your business has been in operation for at least 12 months, brings in $50,000 or more a year, and has a credit score in the mid-600s, you should be a prime candidate.

 

The fact that additional collateral isn’t needed for these loans can really speed up the process. With many other loans, the lender would need to take time to assess the value of the proposed collateral before finishing the underwriting process. But the collateral’s value is a key component of equipment financing, streamlining everything.

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