Part of staying competitive in your market is having the right equipment to get the job done. Unfortunately, that equipment can get costly for any business.
With the right equipment financing options, your business can successfully get the equipment it needs to stay active in your industry.
What is Equipment Financing?
In simple terms, equipment financing is a type of business loan that allows you to buy equipment for your business. Unlike traditional business loans that are unsecured, this type of financing requires collateral. Your business will be using the equipment itself as collateral to secure the equipment loan.
Equipment Financing Interest Rates
According to Lantern by SoFi, equipment loan interest rates typically range from 2 to 20 percent. The specific rate that you get will depend on a few different factors unique to your business. These include your credit score, time in business, business revenue, and the piece of equipment you’ll be financing.
Typically, established businesses with an excellent credit history can achieve lower interest rates. On the other hand, startups that have owners with poor credit are more likely to pay interest rates in the double digits. Lantern by SoFi also notes that equipment loans are usually given for a term of up to 10 years.
The Pros of Financing Equipment
Probably the biggest pro of financing equipment is that you don’t have to use your business’s working capital to pay for the equipment straight out. This is especially important for businesses that don’t have a large amount of liquidity to invest in equipment.
When you opt for an equipment loan, you will eventually own the piece of equipment. This beats out leasing equipment as you won’t own the piece of equipment after the lease terms end. In addition, financing can allow your business to have access to various pieces of equipment instead of spending all your money on just one piece.
The Cons of Financing Equipment
While there are many positives to using small business loans to invest in equipment for your company, there are some downsides that you need to be aware of. The first is that you could lose your piece of equipment if you don’t repay the loan. Unlike buying equipment with cash, there’s always the possibility that you could lose it at some point.
Best Financing Options
Your business can get equipment financing from various sources. These include your bank, equipment dealers, and non-traditional lenders. Finding the right financing options can be simplified by using online marketplace sites like Lantern by SoFi who can connect you with ideal financing options for your situation.
Before applying for an equipment loan, it’s a good idea to sit down and answer the following questions:
- What loan amount do you need?
- What is your business’s annual revenue?
- How quickly do you need the funding?
- How many years have you been in business?
- What are your personal and business credit scores?
- What payment terms are you looking for (ie. term, interest rate, down payment, etc.)?
When you have these questions answered, you’ll be better prepared to apply for the financing that you need for your new equipment.
Getting financing for new business equipment doesn’t have to be difficult. Now, since you understand the various options that you have, you can go find an equipment loan that works for your company.