Equipment purchases can make up a huge chunk of operating expenses for any small business. Small business owners need to explore and utilize multiple funding options in order to finance their operations, especially with it comes to heavy equipment. In this article, we are going to cover three options available for small business owners to finance heavy equipment: equipment leases, equipment loans, and asset-based lending.
With any financial underwriting and loan product, a smart small business owner will consider the alternative options available. By considering these option’s, you’ll have a better idea about how you can use equipment financing to support your small business needs.
An asset-based loan is a lending product based on the value of your business as collateral to secure funding. Examples of assets that can be used toward an asset-based loan are real estate, inventory, invoices, or equipment itself. By using an asset-based loan to cover the heavy equipment itself, or to utilize an asset-based loan to free up cash for other equipment expenses, asset-based lending can help your small business fund heavy equipment.
To secure the credit for an asset-based loan, the lender will have all property, inventory, equipment, and invoices appraised or audited. Typically, the valuation of the business determines the amount of money put on a line of credit. As the value of your company’s assets goes up or down, the line of credit will be adjusted.
With an asset-based line of credit, the heavy equipment itself can often act as the collateral to secure the loan. This makes asset-based lending a good option for small businesses that need heavy equipment financing.
Equipment leases are another alternative to finance heavy equipment. Equipment leasing is generally like renting the equipment you need. You borrow the equipment from an equipment company and make payments over the terms of the lease. At the end of the lease term, there are typically three options: end the lease and return the equipment; extend the lease and continue making payments to use the equipment; or often there is a buy-back option where the small business owner can buy the equipment outright.
Equipment leasing is a useful option for small business owners who need to utilize heavy equipment temporarily. By setting up an equipment lease, you can use the tools you need to get the job done without purchasing the equipment outright and being stuck with it after the job is done and the equipment is no longer needed.
An equipment loan is a lump sum term loan with the restriction that the funds are to be used on equipment. Equipment loans are another option to finance heavy equipment for small business owners because you can make payments over the course of the term length rather than paying for large equipment purchases up front.
Equipment financing provides small business owners with flexibility. By financing heavy equipment, working capital is freed up for other expenses and the burden of large purchases is extended through the length of the financing terms. Talk to your financial professional and consider equipment financing for your small business.