Whether you are upgrading your current business equipment or expanding to a new location, business equipment loans can help you get the money you need quickly.
Typically, business equipment loans have flexible payment options. Depending on the lender from whom you secure the loan, you may be able to make monthly, seasonal, quarterly or biannual payments.
Interest Rates
There are several factors that influence equipment financing rates. Some of them are out of your control, such as the lender's assessment of the risk, which may depend on your personal credit score and years in business, along with your company's revenue and assets. However, you can do things to reduce the loan's interest rate. For example, a larger down payment on the purchase of equipment can help lower the lender's risk and result in a lower loan interest rate.
You can also consider alternative sources of funding, such as small business lines of credit and business credit cards. These types of business loans are available with less stringent requirements than traditional loan options, but they typically come with higher interest rates and fees. They also offer shorter terms and can be harder to qualify for if you have poor credit. They can, however, be an excellent source of short-term working capital for your business.
Payment Periods
Unlike conventional business loans, where the annual percentage rate is determined by your company’s financial history (profitable or not), an equipment loan has its APR tied to the resale value of the equipment you buy. This can make it easier for small businesses with less-than-perfect credit to qualify.
You’ll likely be required to supply a profit and loss statement as well as balance sheets that detail the cash coming in and going out of your business, along with the cost of the equipment you want to purchase. Lenders are looking for enough cash flow to cover the equipment purchases as well as the monthly debt payments.
Depending on the lender you work with, you may be able to choose between a seasonal, quarterly or biannual payment schedule. This can help you manage the cost of purchasing new equipment while keeping your cash reserves intact. You can also choose to finance the equipment over a longer period of time, as some lenders offer up to 10 years.
Collateral
Business equipment loans allow you to buy high-ticket items for your business without dipping into your working capital. That lets you keep your business accounts stocked to pay for payroll, utilities and marketing expenses. Plus, you may be able to deduct your business equipment loan monthly payments as operating expenses on your taxes.
Lenders offer different terms for equipment financing, and their underwriting typically varies by lender. But, in general, you can expect to qualify for this type of financing if your business is in operation for several months and has a solid history of generating revenue. The lender will also likely evaluate your business finances and credit to make sure you have the capacity to pay off the loan. You may be required to provide documents like business tax returns, profit and loss statements, balance sheets and cash flow statements. In addition, the equipment you're buying will serve as collateral for the loan, so you must put up a percentage of its value as a down payment.
Requirements
Depending on the lender, requirements for business equipment small business equipment loans can vary, but many lenders require that the borrower’s personal and business credit scores be in good standing. They may also want details on the specific equipment being purchased and specifications. Additionally, some lenders require a down payment or collateral to protect against default.
Lenders often require financial documents such as profit and loss statements, balance sheets, cash flow statements, and tax returns. Having these in place will help the lender determine your ability to pay back the loan.
Because you are borrowing against the value of your equipment, it’s critical that this asset hold its value. Lenders look at your company’s history of operating the equipment, its projected lifespan, and how well it’s been maintained. Moreover, because this type of financing can be available from a wide variety of sources, you can shop around for the best terms and rates. Consequently, this may save you money in the long run.
