Home Business Insights & Advice What is equipment financing and how can it help my business?

What is equipment financing and how can it help my business?

by John Saunders
20th Apr 21 10:02 am

No matter what type of business you run, you need some sort of equipment. From basic tech, including tablets and laptops, to heavy machinery used in different industries, your budget is bound to take a hit, especially in the beginning. Lucky for you, there are equipment financing options that can help you get started. 

Read on if you want to find out what equipment financing is and how it can be a life-saver for you and your business.

What is equipment financing?

Equipment financing is a type of business loan that allows you to buy or lease the equipment you need to run your business. You can buy any equipment using the money you get, but it is usually reserved for heavy machinery and vehicles. 

This loan will allow you to buy all the equipment you need and still have enough cash to advertise your business and pay your employees. You will be able to spread out your payments over a longer period of time and manage your cash flow effortlessly.

How equipment financing works

Banks or equipment financing companies usually lend you from 80% to 100% of the funds you need to buy equipment. The average loan term can be anywhere from 3 to 7 years. Assuming you pay off the loan in time with no issues, the equipment you buy is yours after the term has expired. 

A great thing about equipment financing is the fact that the equipment itself is the collateral for the loan. If you don’t have the means to pay off the loan, you will simply have to return the machines you bought. You will not have to use any other assets or drain your liquid cash in any way. 

Who can offer you equipment financing?

As we already mentioned above, both banks and different financing companies can offer you this type of loan. However, these two options differ significantly.

Banks

Banks are, of course, the first thing everyone thinks of when it comes to loans. While they can indeed offer you business financing, their business loan rates are often relatively high. In addition, you need to pass extensive credit score checks and have a steady cash flow. 

If you are just starting a business, you know that this isn’t always possible. That is why most small business owners don’t even apply for bank loans, as the chances of actually getting them are not too high.

Equipment financing companies

An equipment financing company, on the other hand, is a dream come true for small businesses. It will offer you financing and help you buy or lease equipment under more lenient conditions. 

These companies give all applicants a fair chance, and their credit score requirements are not as strict as those in banks. Finally, their loan rates are also more affordable, making them a perfect financing partner.

More pros of equipment financing

As we already mentioned above, the collateral is pretty much a part of the loan in equipment financing. That means that getting this loan is easy and doesn’t take long at all. That is a big difference compared to ordinary business loans, which can take weeks to be completed. 

Finally, the right equipment financing option can be rather valuable at tax time. The interest you’ve paid for the loan is deductible, and you can also get depreciation tax benefits. All in all, equipment financing saves you money on all fronts.

In conclusion

Equipment financing is a great way to get your business to take off without using any of your assets. We hope this guide helps you understand the basics of how equipment financing works and enables you to make the best decision for your company.

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