When starting or expanding a business, one of the most significant expenses a business owner faces is buying equipment. To solve this problem, businesses turn to business equipment finance.
Business equipment finance is when a lender provides a loan for purchasing or leasing equipment. Many small and medium-sized businesses benefit from it, especially when they are short on cash. It could provide the means to purchase and quickly start using the required equipment, avoiding any cash flow problems.
A business owner can also keep pace with technological advancements using business equipment finance. Equipment leasing means that a business can upgrade the equipment regularly and enjoy all the benefits of new technology without the burden of purchasing cost.
Two common options for business equipment finance are leasing and loans. In leasing, the business can rent the equipment. On the other hand, in loans, companies can borrow funds to purchase the equipment.
Leasing has a lower initial cost as the business owner only pays for the use of the equipment. There is no interest on the loan, making leasing more attractive, especially for short-term borrowing. Additionally, leasing equipment reduces the risk of depreciation, and in most cases, the leasing company handles maintenance and repairs.
Loans are a better choice when the business owner requires the equipment in the long-term, like buying a company vehicle. Loans provide more flexibility, and the business owner has full ownership rights to the equipment after paying off the loan.
The equipment itself acts as collateral for the loan, reducing the risk for the lender. This means that a business can borrow more funds than with an unsecured loan than without putting up any collateral. Higher loan amounts often lead to better interest rates, resulting in savings for the borrower.
When planning to acquire equipment through business equipment finance, some important considerations are:
1 Interest rates: a business should research various lenders and compare the monthly payments and interest rates. Shop around for the best deals to maximize the savings.
2 Hidden fees and charges: Some lenders include hidden fees and expenses. Review the loan agreement and ask questions if there is something unclear.
3 Payment schedule: Equipment financing is a long-term loan, so consider the appropriate payment period. Evaluate how long the equipment would last and plan the payment schedule accordingly.
4 Credit score: A business’s credit score plays a crucial role in getting a good business equipment finance deal. Lenders take the credit score seriously and use it to determine the risk level of the loan. Businesses with higher credit scores get better interest rates and loan terms.
It is important to note that some lenders only finance specific equipment types, so it is important to look for a lender that aligns with the business’s needs.
When applying for business equipment finance, a lender will typically look at a business’s credit history, the business financial statements, and the details of the equipment being financed.
The application process can take up to several weeks, depending on the lender’s process, so plan accordingly. A business owner should make sure to have all the required documents ready to ensure the application is processed as smoothly and quickly as possible.
As with any debt, make sure that the business can afford the monthly payments before committing to business equipment finance. Take a moment to review the business’s current financial situation and budget to make an informed final decision.
Business equipment finance could be a valuable tool to help a business grow by purchasing the necessary equipment. A business owner should evaluate whether leasing or a loan is more appropriate depending on their requirements. Regardless, it is essential to consider the equipment type, payment schedule, and interest rates before applying for financing.
