What Are Equipment Loans?
As you might have guessed, equipment loans are loans dedicated to helping business owners purchase the equipment they need to carry out necessary business practices. Whether you need to purchase new equipment or replace old supplies, equipment financing is a great solution.
Since the equipment you purchase is used as collateral, small businesses are able to easily qualify for sizable equipment loans with flexible repayment options.
Like most other small-business loans, equipment loan providers will want a detailed expense report.
Do you already know exactly which equipment you plan to purchase? Have you received quotes for this equipment? How will this equipment benefit your business?
Your lender will typically need you to answer these questions before approving you for a loan. Many equipment loans stipulate that you can only use the funds to purchase predetermined equipment. You should take a moment and thoroughly think through your needs, organize them, and then begin applying for loans.
Your credit score will also be taken into consideration. Of course, this varies by lender, but 600+ is a good benchmark to aim for if you want a favorable interest rate. You may also need additional documents such as a profit and loss statement, bank statements, a business plan and other similar materials.
Equipment Financing Options
The best equipment loan depends on your needs and financial situation.
Banks often require a very good credit score and relatively sizable down payment, but offer favorable APRs and a variety of repayment plans. Banks can be a great option for small businesses in good financial standing.
Online lenders are another great option that often offer favorable loan terms and cater to borrowers with bad credit. There is a tremendous array of options when it comes to online lenders, so make sure you find one that best suits the needs of your specific business.
SBA loans offer some of the most favorable terms for equipment loans. The SBA does not lend money itself, but partners with lenders and sets guidelines to reduce risk and make it easier for small businesses to get the financing they need. In other words, the mission of the SBA is to make it easier and more secure for you to get funding.
Benefits of Equipment Loans
Equipment loans offer several advantages that are not provided by standard small-business financing options.
Small businesses may find it difficult to be approved for standard small-business loans due to low working capital, poor credit, no available collateral or other reasons.
Since equipment loans use the equipment itself to protect against defaults, this type of financing is naturally less risky for lenders than other types of loans—making it easier to be approved quickly and for the amount you need.
Conserve Cash Flow
Your working capital should be conserved to fund daily operations and new business ventures.
Equipment can be incredibly expensive. From office supplies to industrial tools, new equipment can easily cost anywhere from thousands to millions of dollars. Equipment loans allow you to purchase this equipment without sacrificing your business’ cash flow.
Often, equipment expenses can be considered an operating expense. As such, your equipment loan payments may be tax deductible. Tax codes very nuanced and often difficult to navigate, so you should consult with your tax attorney to verify that this benefit applies to you.
Modernize Your Business
If you have been in business for a long time, you may struggle to keep up with developments in technology. There have likely been many upgrades to the technology that you are currently using, resulting in your current business practices not being optimized for profit or productivity.
Equipment loans help small businesses keep up with innovations in their industries that they would otherwise be unable to afford. You need to take advantage of this, and maximize your revenue as much as possible.
Applications of Equipment Loans
Equipment loans can be used for just about anything. From chairs and desks to tractors and trailers, equipment loans can be used for everything you need to run your business.
For new small-business owners, you likely do not own any of the equipment you need to effectively run your business.
As long-term equipment loans can be borrowed in amounts up to $10 million, this type of financing can help you purchase anything you need, from pencils to manufacturing equipment.
Modern POS System
For brick-and-mortar businesses, a modern and flexible POS (point of sale) system is a great way to increase efficiency and improve the customer experience.
Does your current POS system accept modern payment methods like mobile payments and chips? If you serve customers outside of your standard operating locations, do you offer a mobile POS system to accept payments on the spot?
If you answered no to either of these questions, you can use equipment loans to offer more flexible and efficient payment solutions.
Purchase Energy-Efficient Tools
Energy-efficient equipment is environmentally friendly, cost effective and offers some tax benefits. Although the initial cost of transforming your current hardware to energy-efficient tools may be large, the change will provide you with great returns and a smaller carbon footprint.
Equipment loans are an incredibly accessible financing option for small-business owners who need to purchase new equipment or replace old equipment. Given how accessible they are and how much they can benefit your business, you might want to consider applying for a business loan this year if you have not already.