Expanding a small business can lead to a lot of great benefits. Getting there, however, can be difficult if you don’t have the right equipment. Equipment financing can help, providing loans for any type of business equipment and financing up to 100 percent of the value of computers, desks, machinery, vehicles or any other equipment you need.
Why Get An Equipment Loan?
As a small business owner, you may already be saving money to buy new equipment regularly. But even that may not be enough, or you may run into an unexpected problem and need new equipment immediately. The company car could break down, a computer virus could infect your office, or a flood could damage equipment. Whatever the reason, you would need cash immediately to buy new equipment.
Or, you may want to open a second office and need equipment such as desks, chairs, computers, lights and more. An equipment loan could pay for all of that.
How It Works
An equipment loan for your small business can be a smart move, allowing you to borrow up to the value of the equipment for its expected lifetime.
It works like a car loan. Equipment is the collateral to secure the loan, freeing you from putting up anything else as collateral such as your house or business assets. Most loans are made at fixed interest rates and offer a fixed term length so that monthly payments are always the same.
Cost
One main advantage of equipment financing is that you don’t have to pay the entire cost of the equipment upfront. It will cost more to finance the equipment, but the cost is spread over time with low payments. For example, if a piece of equipment costs $10,000 and the lender charges you 12 percent interest on a loan for that amount for three years, you’d pay a total cost of $11,957.15, with $1,957.15 of that being interest. The monthly payment would be $332.14.
Another advantage is you own the equipment after the loan is paid off, which could make it cheaper in the long term when compared to leasing the equipment. After a lease term is over, you wouldn’t own the equipment.
Advantages
- Quick turnaround of around two days for loan approval
- Pays for new equipment instead of repairing old equipment
- Equipment serves as collateral
- Builds credit
- Potential tax benefits
Drawbacks
- Equipment could be obsolete by the time the loan is fully repaid
- Could tie up credit, preventing you from applying for other loans
- May need to depreciate equipment, so you couldn’t deduct full cost each year
- Requires additional expenses such as insurance and maintenance
Who Qualifies?
Most small businesses can qualify for equipment financing. The loan amount you qualify for and the interest rate depend on the value of the equipment, your business history, and your credit rating.
Even if your credit rating is less than perfect, you can still qualify for an equipment loan because the equipment is collateral for the loan. Because equipment loans are secured by the piece of equipment that’s being financed, the loans are easier to get and require less documentation than a typical business loan, where a lender will want two to three years of profitable operation.
