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Businesses rely on various pieces of equipment to get their work done. For example, are you tasked with building a house or new business facility but lack the equipment you need to begin construction? Don’t worry. You can access equipment financing today.
A business might need equipment for several reasons. For example, you might need to:
- Replace old equipment
- Update obsolete equipment
- Add new equipment your business needs
So, how do you get equipment financing? Let’s first find out what we mean by this term.
What Do We Mean by “Equipment Financing”?
You would never consider paying rent for your office space many years in advance. That just doesn’t make much sense, does it? Well, similarly, you don’t have to rent your business’s equipment for several years in advance.
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Equipment financing is the ultimate solution to this problem. Equipment financing refers to a credit agreement that enables you to finance the equipment you need to run your business.
You depend on your business’s equipment to keep your company running smoothly. It is the availability and effectiveness of your company’s equipment that will determine whether your business will grow or stagnate.
It doesn’t matter what industry you’re operating in. You might need various pieces of equipment ranging from commercial vehicles to plant machinery.
Where Can You Get Equipment Financing?
There are various options to access equipment financing. These include:
Online lenders can offer equipment loans at more flexible terms than typical bank loans or loans from the U.S. Small Business Administration (SBA). Online lenders mostly deal with startups or small businesses.
The equipment financing application process is quite fast. In fact, you can access loans within 24 hours after your application. However, online lenders usually charge a higher interest rate than banks do.
Small Business Administration (SBA) is a good place to access equipment financing. The terms on SBA loans are usually quite favorable. For example, some SBA loans offer repayment periods of up to ten years and interest rates that are lower than the loans you’ll find from online lenders.
Moreover, approval for SBA equipment loans is fast. Additionally, they accept various forms of collateral including other equipment you own. To access the loan easily, you’ll need:
- A good credit score or
- A low credit score but with heavy business financing
Banks and Credit Unions
The most favorable equipment financing loans come from banks and credit unions. This is because of lower interest rates and longer repayment periods. However, these loans are difficult to access because of the strict conditions that include:
- A high credit score
- Many years of business operation
- Good business finances
Nonetheless, despite the strict conditions, accessing loans to finance business equipment is more affordable than loans from online and SBA lenders.
What Are the Steps to Getting Equipment Financing?
You’ll have to go through the following steps to access equipment financing loans for your business.
Have a Good Credit Score
The first thing lenders look for is your credit score. Therefore, to ensure you stand a chance of getting a good loan, you have to put your credit score in shape. This includes your business credit history as well as your personal credit history.
When reviewing your credit history, check for items such as student loans, mortgages, other business loans, and credit card loans, among others. If you have difficulty finding your credit score, you can make use of free online tools such as FICO.
Have a Good Business Plan
Most lenders will require a business plan before they decide whether to award you an equipment financing loan or not. Your business plan should provide details about:
- Product or service
- Business cash flow
- Business goals
- Target market and its socio-economic demographics
- A description of how your product or service answers market demands
The business plan should also contain a brief summary of the whole document. This is referred to as the Executive Summary. Your business plan doesn’t have to be lengthy. However, it does need to accurately describe your business.
Update Your Cash Statement
Equipment finance lenders will also need to know if you can repay the loan they give you. As such, they will use your business’s cash statement to access your business performance. Your cash statement should contain updated records of all the cash that comes in and goes out of your business.
If you have difficulties preparing cash statements for your business, you should consider hiring a professional accountant to help you.
What Are the Benefits of Equipment Financing Loans?
Financing your business equipment through loans will attract various benefits to your business. These include:
- You will be able to access a loan quickly, thanks to the fast approval process
- Equipment loans are tax-deductible because they are treated as operational expenses
- You’ll have a flexible schedule to repay your loans
- The loan will free up your other income streams to invest in other areas of your business
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In a business situation, it’s better to seek financing and buy equipment now than to wait until there’s enough money to buy it in cash. Knowing how to go about financing the equipment you need is important. However, if done properly, equipment financing can help your business to grow quickly. What’s more, it will save you money on your taxes as well.
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