Many businesses require certain machinery and capital to conduct their daily business operations. Equipment financing specializes in providing the proper capital needed to businesses that require them. Some of the available options when considering equipment financing are leasing, purchasing, or an SBA loan. To qualify for equipment financing, your credit report will be evaluated, collateral will be required, and a down payment will be necessary.
It is important that you asses which option will be best for your company, given your field of business. For example, doctors will need medical equipment, such as stethoscopes and MRI/ x-ray machines. It is also important for you to consider whether you would like to lease or purchase your equipment. When leasing, your equipment will be easier to upgrade in the future and down payments will be lower. However, leasing may be more costly than purchasing equipment in the long run, and you will not own any equipment you lease. On the other hand, when purchasing equipment, terms will be more flexible, you will own the equipment, and you may qualify for certain tax benefits. Yet, disadvantages of purchasing equipment are that they will not be easily upgraded, and down payments will be higher.The SBA 504 loan is another option, which is an equipment financing backed by the government. Your business must be for profit and have a solid business background to receive one of these loans.
Your business’ ability to repay a loan will be a considerable aspect in obtaining a loan. The major factors in ensuring your company can receive a loan are a good credit report and a solid business foundation. For example, businesses must be running for at least two years and have a quality credit score, usually well above 680.
Choose a Lender
When choosing a lender, it is noteworthy to have a solid business plan that explains your goals and specialties to the lender, and a letter that will provide reasoning as to how acquiring certain equipment will assist you in accomplishing your goals. Your lender can also provide you help in obtaining the loan most beneficial for your business.
Lenders will often require documentation before accepting a loan. Usually, bank statements, tax return, and paychecks are sufficient enough for a lender to understand whether your business can repay the amount. Loan to values can often be up to 85-100%, however, your equipment may be used as collateral and down payments are necessary. However, closing the loan can usually be done at an efficient pace to ensure you receive your equipment and thrive as a business.