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Quality equipment is crucial for your small business’s success. It can significantly boost your long-term revenue and profitability while allowing you to enhance your product quality, which can justify higher pricing. Whether you’re looking for high-tech machinery, office furniture, or computers, turning your equipment wishlist into reality often requires a financial investment. But what if you don’t have the funds to purchase everything you need? You’re not alone—many small and medium-sized enterprises (SMEs) face this challenge every day.
The good news? Equipment financing is an excellent solution for business owners who want to acquire essential tools without breaking the bank.
What is equipment financing?
Equipment financing is a type of business financing specifically designed to help companies purchase the equipment they need. This financing option allows you to buy everything from computers to heavy machinery, with the asset itself acting as collateral for the loan. As long as you keep up with your loan payments, you get to use the equipment; if you fall behind, the lender can reclaim it to cover the unpaid loan balance. One of the best features of this financing is that you can often finance up to 100% of the equipment’s cost.
Features of equipment financing
- Security: The equipment purchased acts as collateral, meaning you don’t need additional assets to secure the loan.
- Maturity: The expected lifespan of the equipment typically guides the loan term.
- Interest rates: Ranging from 8% to 30%, these rates vary based on several factors.
- Funding time: Most loans are approved hassle-free within 48 hours.
Qualification requirements
Getting approved for equipment financing is straightforward. The application process is quick, usually taking just one or two business days. You don’t need perfect credit, and often no collateral beyond the equipment itself is required. Here are some basic qualifications you should meet:
- Business history: You should have been in operation for at least six months to two years.
- Annual revenue: Generally, businesses should earn between $25,000 to $150,000 annually.
- Credit score: A minimum credit score of 550 to 640 is typically needed.
- Down payment: A down payment of 5% to 20% may be required, especially for those with better credit.
These are general guidelines; different lenders may have additional criteria. It’s essential to have an open dialogue with your lender to understand what they need from you.
How to apply for equipment financing
Applying for equipment financing is easier than you might think! Researching different lenders and their options is crucial before you decide on a financing partner. Here’s a quick rundown of what you might need during the application process:
- Complete an application: Fill out the lender’s application form.
- Provide financial proof: Be prepared to submit tax returns and bank statements to demonstrate your business’s credibility.
- Detail your equipment needs: You may need to provide an equipment quote or details about what you intend to purchase.
- Background check: Lenders typically perform a credit check as part of their evaluation.
Documents you’ll need before applying
- Driver’s license
- Voided business check
- Bank statements
- Credit score
- Business tax returns
- Equipment quote
Why consider equipment financing?
According to the Equipment Leasing and Financing Association, around 79% of U.S. companies utilize some form of financing when acquiring equipment. This type of financing can be a game-changer when you need important tools or technology quickly. From computers to specialized machinery, having the right equipment is vital for your daily operations.
Advantages of equipment financing
Here are some compelling reasons to consider equipment financing:
- Quick and easy access to funds
- Limited paperwork
- No down payment required for 100% financing
- Suitable for both startups and established businesses
- Flexible repayment options tailored to your budget
- Reasonable interest rates
Situations you can use equipment financing for
You can finance a wide range of business-related equipment, including:
- Office furniture and fixtures
- Agricultural machinery
- Business vehicles like trucks and tractors
- Manufacturing equipment
- Restaurant kitchen appliances
- Medical imaging tools
- Technology upgrades, like software
- How does equipment financing work?
The process is simple: when your business needs a specific piece of equipment, you reach out to lenders or equipment financing companies. After reviewing your financials, the lender will provide a lump sum to purchase the equipment, under the condition that you make regular payments until the loan is fully repaid.
Interest rates typically range from 8% to 30%, depending on the equipment’s cost and lifespan. Payments are predictable, allowing you to budget effectively.
How much does equipment financing cost?
The costs depend on various factors, including:
- Equipment price
- Lender terms
- Equipment age
- Your business’s credibility
- Duration of your business operations
For example, if you need $20,000 worth of equipment and secure an equipment loan for 80% of the cost, you might pay $4,000 upfront. If your lender charges a 10% fixed interest rate over four years, your total repayment could be around $41,600, with monthly payments of about $866.
Are you still facing challenges getting favourable loan terms? Forwardly is here to help! We improve your cash flow position by making your billing and invoicing easier, making it possible for you to secure better financing options and pay lower interest rates. Sign up for free today and take your business to the next level!
