What is Equipment Finance? It is a question every small business owner asks when they hear about equipment finance. This term is not new to finance, but many business owners are unaware of it. It is easy to get financial aid to purchase equipment for operation. Many resources are needed for operating a business.
Equipment and machinery are the business items that come at higher prices. For a small business owner, purchasing them means disrupting the financial budget. In this article, you will learn what equipment finance is and how it can help your business.
What Is Equipment Finance?
In simple words, equipment finance is the loan used to buy the equipment for business. Equipment can be of various types, from small business items to large machinery. Business equipment is an asset that helps in the operation process of products or services. For equipment finance, business owners or representatives apply for the loan. Various financial institutions provide loans on equipment.
Understanding What Is Equipment Finance In Detail
As you have a better understanding of equipment finance, let’s understand equipment financing in detail.
- First, finance for equipment can be described as the financial aid or loan offered by institutions or banks. The loan is given for the purchase of the business’s essential items.
- It is an important part of any business operation process. Small businesses or startups rely on this financing for purchasing the equipment. The operational items needed for business are costly. Purchasing them increases the business expenses and disrupts the financial budget.
- The equipment finance is also used for obtaining expensive equipment for business. The debt obligation may be huge in such cases, representing finance commitment. That’s why a business owner needs to choose the finance plan carefully.
- The whole equipment finance term consists of a loan or lease. That means people have an option to obtain a loan or lease equipment. Which option you choose depends on factors like credit rating, interest rate, and equipment life expectancy.
What Is Equipment Finance Lease?
The most asked question by business owners is, what is equipment finance leasing? There is a major difference between a loan and a lease. In simple words, equipment finance leasing means you take the equipment for a particular time. Leasing is a less expensive option, especially if you need any equipment for the short term.
In the equipment finance process, the requirement for a down payment is zero. Businesses need to pay rent for the particular lease period. Moreover, leasing agreements also provide an option to purchase the equipment at the end of the lease term.
How Does An Equipment Finance Loan Work?
Knowing what equipment finance makes it easy to understand equipment finance loans. When you take the loan for purchasing the equipment for business, that equipment serves as security for the loan. The lender can hold full control of the equipment until the whole repayment of the loan.
In the equipment finance loan, the borrower needs to provide a certain amount as a down payment. The interest rate on equipment varies, which can range from 5% to 30%. The various factors determining the loan’s interest rate are business credit score, operation period, loan period, etc.
Benefits Of Having Equipment Finance For Business
The renowned financial advisors suggest using the equipment finance for small businesses. The reason is the immense benefits it offers to the businesses. The significance of essential equipment in the business’s daily operations is no longer secret. Here are the benefits equipment finance offers to businesses:
Equipment finance allows small businesses to maintain their budget. It eases the business’s cash flows as the financial aid is obtained at less down payment. Businesses have an option to acquire the equipment once they repay the whole loan amount. The whole process can be done without disturbing the actual budget.
Improves Credit Score
The reason people learn more about equipment finance is because of the benefit of credit score. The equipment financing improves the business credit score. As the equipment serves as security, it automatically improves credit scores in the future. Once you take ownership after repayment, various financial institutions see it as a sign of a strong credit score. In the future, you have more options to obtain financing for other equipment.
The goal of every business is to increase production as soon as possible. Equipment finance lets you focus on the operation by providing equipment in less time. With the latest machinery and tools, a business can even fasten production.
Getting a finance loan is easy online with help from various financial institutions. Business owners can focus on increasing revenue without worrying about the high cost of equipment.
Businesses who know what equipment finance is might not know how it can help tax savings. Equipment financing or lease offers great tax benefits to the business owners. The installment paid during loan repayment is tax-deductible. That means it reduces the overall taxable income, which can be used in other processes.
Build Up Asset
Equipment finance helps in building a great asset without investing large money. The equipment you purchase with the loan turns into an asset after repayment. In the future, a business will own equipment that adds an asset to the business. Great finance allows you to pay the loan in easy EMIs.
Ways To Get Equipment Finance For A Small Business?
Getting equipment finance for a small business requires proper planning and knowledge of the resources. In many ways, the equipment loan works like regular business loans. You pay the loan in the monthly installments along with principal and interests. If you are looking to get the equipment finance for your business, look at the following steps:
Check With Your Bank
First of all, check with your bank for the equipment finance. They can easily give equipment financing because you have a relationship with them. You can also reach out to other local financial institutions that deal with equipment loans. The advantage of dealing with your bank for equipment loans is a great relationship with them.
Search For Online Lenders
The other way to get the equipment finance is the online lenders. Many platforms provide online lenders for equipment finance. These specialize in short-term and long-term finance for different types of equipment. Online lenders’ great network with vendors and manufacturers is the best part. With the help of online lenders, you will get the loan at competitive rates on high-specs equipment.
Apply For SBA Loan
The Small Business Administration (SBA) helps get equipment loans from certified lenders, banks, and financial institutions. The SBA allows small businesses to access financial support at a great interest rate and period. You can apply for both SBA 7(a) or 504 loans, which can be used for equipment purchasing.
Equipment Financing Agreement (EFA)
The Equipment Financing Agreement (EFA) is the best option if you want fast equipment finance. It is a hybrid loan that comes in an agreement. In other words, an agreement loan requires you to pay the monthly payments.
It is similar to equipment leasing; the major difference is the monthly repayment of the loan amount. In EFA, both the lender and borrower agree on the terms and conditions of the equipment loan.
Small businesses find it difficult to boost the operation process due to the unavailability of modern equipment. The reason is a lack of knowledge about what equipment finance is. Financing equipment is an easy way to use the loan to purchase the required equipment for business. Various institutions provide the loan at an affordable interest rate and period. We hope you understand equipment finance and how it can benefit your business.
Alnicor Consulting provides consulting services in equipment finance to small business owners. Our professional team takes you through the process of securing the best deal on equipment financing. We assist our clients throughout the verification of documents and application process. Get fast financing for your business with us.
For more info, contact us now.