It doesn’t need to be difficult to get an equipment loan. It can be as simple as these five steps.
Is it the right time?
You should consider whether you might be able to get an equipment loan. First, think about why you need the money. Also consider whether purchasing equipment is a good fit for your business. Are there better ways to spend limited funds? Although equipment loans may not be the best option for everyone, if you answered yes to these questions, then it is time to move on to step 2.
What amount do you really need?
Although most lenders will finance 80 percent of the purchase price for high-ticket items, others may only accept a smaller down payment.
What type of equipment would you like to buy?
Is it a personal or commercial purchase?
What length of time do you need the loan?
Is it part of an overall financing plan, such as a line of credit? Or is it to replace existing financing with more attractive terms?
Is there a deadline for the deal to be completed?
Lenders with funds that aren’t available quickly can make them riskier to their investors and depositors. They may reduce the amount of loans they offer until they have enough demand. If you have to complete your project in 3 months or less, this can make it more difficult unless you are able to do the majority of the legwork.
You have many options when it comes to financing equipment purchases for your business. Are equipment loans right for you? Is it better for you to lease than buy? Are there other options that may be better suited to your needs than the two above? If you decide to lease, do you think it is wiser to use a third-party leasing company than one that provides loans or other financial services? Let’s first look at the three main options…
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Buying Equipment
Although the initial cost of equipment may be the same, it will cost you much more to maintain it over time than leasing it. A $20,000 monthly payment could cost you up to twice as much over five years than the price of purchasing the same equipment in a single payment. If you only need the equipment for a short time or your business is volatile, leasing may be a good option.
Leasing Equipment
Leasing instead of buying can make it easier to get approval for a new copier or piece manufacturing equipment. Most banks will consider leasing when assessing your creditworthiness. Many lenders have included special provisions in their lending criteria for this type of borrowing. Leasing allows small businesses to obtain the equipment they need, with leases lasting typically between one and five years. This allows them to move on to other things without being obligated to continue using it.
Financing Third-Party Equipment
A finance company is the third option when financing equipment. This is because you can find the most competitive rates and terms. Independent leasing companies may have lower rates than banks. Many companies, including banks, now require that you use one of their preferred vendors for all leases or purchases. This has both advantages and disadvantages. Vendor X may have a lease agreement, but you decide Vendor Y’s deal is better. Vendor X’s lender will likely agree to that contract.
After you’ve made the decision about which type of equipment loan you want, you need to understand how equipment loans work.
What is an Equipment Loan?
The main difference between equipment loans and other types small-business loans lies in the structure. Equipment loans can only be used to finance a specific purchase. In this instance, it is the gear that you are looking to buy. Small business loans can be used to fund working capital which you can use as you wish. We’ll also discuss working capital as an option.
Equipment financing is secured by a lender. You will need to provide a quote to your lender detailing the cost of the item or documentation proving its utility and comparable value. Equipment that is not likely to lose value and won’t depreciate quickly are generally eligible for loans. Once you are approved, the money will be transferred to your lender. This money can then be used to finance the purchase of new or used equipment.
The process of getting an equipment loan depends on which type you choose. You may not need additional collateral. This is because certain types of these loans can be called “self-secured”, which means the equipment that you finance serves as collateral. If you default on your loan, the lender can seize equipment that you have purchased and then liquidate it to recover losses. This is why lenders won’t finance equipment that loses its value quickly.
For term loans, you might need to agree to a UCC blanket or personal guarantee to secure financing.
Equipment Financing
A reliable lender like Progressive Business Capital is essential if you want to secure financing for equipment. There are many options available to you to obtain the equipment that you need for your small business.
Please feel free to call us at (800) 508-4532, or email [email protected].
