As the business market is evolving rapidly, almost everyone seems to be trying their luck in their new ventures. For every startup to get off the ground, some sort of trading tools is a prerequisite!
Different industries, be it product or service-based, need different equipment to be bought for the efficient functioning of the businesses. A successful entrepreneur always focuses on less input and maximum output so they can earn the best profit out of it, and this is the reason your business requires advanced machines or equipment. However, purchasing these business tools or upgrading the old and malfunctioning ones can cost many seasoned professionals a fortune. According to a survey by HIS Markit in 2017, around 71% of companies with over $100 million revenues indicated that they plan to increase equipment acquisitions in the next 12 months.
Financing equipment is desired in many situations during a business to maintain the sustainability of the trade. Circumstances when the old machines entirely fail to work, become obsolete, the previous instruments become less resourceful as they deliver poor results, or when you necessitate to expand your business and enhance your operations for which you need additional devices is when equipment loan or lease like Business Equipment Financing comes into play.
Here are some things you need to keep in mind if you are keen to arrange finances for your equipment.
A company’s reputation on stature and financial level are two main pillars on which your equipment loans stand. A good credit score creates an impression before the lender and makes the financing procedure seamless. The annual revenue generated from a particular business and the company’s reputation in the market makes it eligible to be considered for approval.
NATURE OF MACHINERY:
Equipment financing majorly revolves around the kind of business you are involved in, as your business determines the type of equipment you require. Machines like heavy vehicles will need a longer time to repay the loan whereas the ones like computers will get old and outdated leading to performance issues, hence they will require frequent maintenance and high-interest rates, involving some down payment as well.
So if you’re contemplating to arrange funds for your equipment, here are some suitable options.
An equipment loan works well for small business applicants despite their bad credit score and can finance 100 percent of their equipment purchase. The process is faster since it's mostly online, requires the equipment as the collateral and you can pay back the loan even after 10 years.
It is a simple, transparent, and fair procedure to provide you funding within 24-48 hours. All they ask is the type of your business, annual revenue, and its growth. Subsequently, the lenders connect your bank account and you can obtain capital the same day.
A term loan is similar to a mortgage. It works well for established businesses as they can acquire capital by up to $1 million. It involves giving away any of your business assets as collateral and can return the loan over a term period. However, in order to qualify, you require a healthy credit score, in general over 660, which is very unlike equipment loans.
SHORT BUSINESS LINE OF CREDIT
A business line of credit is a short-term loan that covers the glitches in your cash flow plus it can be returned over a period of a few months to five years. However, it has one drawback that it involves high-interest rates which can be too costly for startups.
BUSINESS CREDIT CARD
A business credit card works for seasoned professionals with small equipment purchases as they entail the lowest credit limits of $100,000. Unlike other financing options, credit cards enable you to earn rewards that lead to discounts.
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However, it comes at an expense that is high-interest rates.
Instead of borrowing money to buy machines, you can borrow the equipment itself. An equipment lease is monthly installments that involve two types namely, capital and operational. Capital lease funds the equipment you aim to possess in the future whereas the operating lease is kind of a rental contract whereby you are required to return the equipment.
The Final Verdict
In conclusion, people nowadays endeavor to begin a business but very few of them have awareness of acquiring funds for equipment required in the process to achieve a profitable business. Therefore, this article aims to help you weigh your options carefully! It guides businessmen to acquire entire financing with zero down payment, reserve cash flow, address tax considerations and upgrade their machines timely by considering any of the above convenient investment choices. Regardless of which way you choose to finance your business equipment, be clear of your choice and never compromise on the quality of your trade.