It’s a difficult time to be a small business owner. You undoubtedly have a lot on your mind, from managing business finances to ensuring that you and your employees are safe and healthy. Fortunately, the Small Business Administration’s (SBA) coronavirus relief alternatives, including SBA Express Bridge Loans and SBA Debt Relief, are available. If your company is having trouble, one of these possibilities might be worth exploring.
Many small business owners believe that having the correct equipment is critical to their success. Commercial kitchen appliances may be appropriate for a restaurant; agricultural equipment may be appropriate for a small farm; printers and desktop computers may be appropriate for an accounting firm.
Many small business owners are unable to purchase necessary equipment and machinery due to the high cost. This is where equipment lending (sometimes known as equipment loans) might help.
If you’re new to equipment finance, we can explain what it is, where you can get it, and give you some pointers on the application process to be better equipped to develop a successful business.
How Does Equipment Financing Work?
For business owners, there are various financing options available, including loans tailored specifically for the purchase of business-related equipment. You’re not alone if you’re unsure what equipment financing is.
The following are the fundamentals of equipment financing:
- The funds can be utilized to purchase new or old machinery.
- Typically, equipment is used as collateral for a loan.
- Depending on the lender, financing for up to 100% of the equipment cost may be available.
- Terms differ by lender, although they might range from a few months to ten years.
- You have the option of taking out a loan or leasing a vehicle.
A small business loan for the acquisition of specialized company equipment is known as an equipment loan. They are short-term company loans that are usually repaid in a few years. Because the equipment functions as a type of security, similar to a vehicle loan, you may acquire loans without depleting your cash reserves or depending on higher rate forms of financing with business equipment financing.
In addition to establishing a lien on the equipment, some lenders may need a personal guarantee. In the event that you fail to repay the loan, a personal guarantee allows the lender to confiscate the business owner’s personal assets. This lowers the lender’s financial risk, and it’s a frequent technique for company loans.
The lender determines the prices and terms of equipment loans. You will most likely return the amount owing for the equipment in installments over a defined period of time if you use equipment financing.
A new restaurant is an example of a potential candidate for equipment finance. The owner may need to purchase a variety of items, especially if they are just getting started. Assume they require $100,000 to purchase kitchen equipment such as commercial ovens, stoves, and freezers. However, $100,000 is a large sum to withdraw from savings, assuming you have any at all.
The restaurant owner might receive the equipment they need with an equipment loan without placing too much burden on their personal or business finances. They might be able to acquire funding for a considerable amount, if not all, of the cost of the equipment.
Let’s imagine the owner is authorized for an $80,000 company equipment loan instead of paying $100,000 out of pocket. The ovens, stoves, and freezers are used as collateral for the loan, which means that if the restaurant owner defaults on payments, the lender can seize such items to recuperate their losses. Because the restaurant owner only had to spend $20,000 out of pocket, he or she now has more money in their cash reserves to put toward other important beginning expenditures like permits, payroll, and marketing.
The Advantages of Equipment Loans
Equipment financing may provide other benefits in addition to providing funding for the purchase of required equipment, such as:
- Purchased equipment may be eligible for tax deductions.
- Compared to typical business loans, the application may involve less documentation and have a faster turnaround time.
- Allow you to sustain cash flow without using a credit card or a company line of credit.
- Equipment loans may have lower interest rates than typical loans.
- Because the equipment serves as security, it may be easier to qualify for than a standard company loan.
What’s the Difference Between Leasing and Equipment Financing?
Who owns the equipment is the key distinction between manufacturing equipment finance and equipment leasing. The equipment is owned by the business owner at the conclusion of the loan period with equipment financing. The lender owns the equipment and rents it to the leaseholder through equipment leasing. Because you don’t own the equipment, it can’t be used as security, making this sort of borrowing riskier for lenders.
If you’re ready for manufacturing equipment finance, attempt to figure out what industry your company belongs to. There are lenders who specialize in specific sectors and may be able to assist you in obtaining the best equipment loan for your needs.
The sections that follow are devoted to industries and goods that could be eligible for a capital equipment lease.
- Industrial Machines
- Dental or medical practice equipment
- Restaurant Commercial Equipment
- Office Supplies
- Fitness Equipment
- Oil and Gas Equipment