A lot of businesses require physical assets before commencing operations. Such assets can be desks, commercial ovens, displays, shelves, manufacturing tools, and vehicles, etc. Businesses generally find it very hard to get such items before launch and getting regular revenue. In such times, financing for purchase of such assets can be of great help. Also referred to as equipment loans, equipment financing is a loan that is taken out exclusively for the purchase of physical assets for a business. As opposed to other kinds of business financing or business loans, the collateral in case of equipment financing is the equipment itself. Hence, such loans are more accessible and attractive for new businesses.
Equipment financing can simply be explained as a loan that can be availed for a business with the only purpose of the loan being purchase of equipment essential for running the business. In case the loan repayment is defaulted, then the lender takes away the equipment and then sells it off to recover some of the costs of lending the loan.
Equipment financing: How does it work?
Equipment financing is the perfect loan option for businesses that require some costly tool for the long-term, but cannot afford to buy it by paying the full cost of equipment upfront. In such cases, a major share of the capital amounting to over 80 percent is provided by a bank or other financial companies for the purchase of the relevant equipment. The business owner then contributes the remaining capital amount, buys the equipment, starts the business, and then repays the equipment loan to the loan provider along with interest in the form of monthly payments.
Different kinds of equipment financing is offered by different types of financial lenders and the disbursement of each of these loans are dependent on different factors like the credit score of the business, its history, and other business requirements. Equipment loans can be availed from credit unions, traditional banks, and online lending companies. A program that caters to disbursal of equipment loans to small businesses that require expensive machines is also offered by the U.S. Small Business Administration.
How to avail of equipment financing?
Follow the steps listed below to get equipment loans:
- Equipment loan lenders may check the credit score of the business and the business owner before approving the loan. Hence, check the credit report and correct any errors that may be present before applying for equipment financing. If the credit score is low, postpone the application and work towards improving the credit score.
- Ascertain the exact loan terms that are feasible for the business and you. Then start searching for the correct equipment loan.
- Have all the relevant prepared and handy beforehand. Also create a comprehensive business plan that details the need for the equipment and how it is vital for expansion of the business. You may use varied resources available online for making an impressive business plan. Do not forget to mention the amount that you can repay as monthly payments.
- You may visit credit unions, local banks, chamber of commerce, or the local SBA office to shop for equipment financing. You may also check out different online lenders and compare the different offers by each of them.
- After finding the right equipment loan, read the fine print and other contract details before signing. You may also get the contract checked by a financial advisor. After the contract is signed, the equipment loan will be disbursed between 2 days to 2 weeks, depending on the type of lender. Traditional banks take more time than online lenders.