A Quick Guide on HVAC Equipment Financing
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- HVAC equipment financing is an asset-based financing solution that allows small business owners to equip their establishments with the right cooling, heating and ventilation systems.
- Borrowers can get up to 100% of the equipment’s full amount depending on the strength of their application requirements and credit rating.
- Small business owners with bad credit can still apply for HVAC equipment financing because they can use their equipment as collateral.
- Some small business owners don’t need HVAC equipment for long-term use. As an alternative, they can opt for equipment leasing instead.
Getting quality heating and ventilating systems comes with a price tag that most small business owners cannot pay outright. If you’re having trouble on this front, you may qualify for any alternative small business loan solution, particularly HVAC equipment financing.
This article will provide you with all the information you need to get equipment financing for your cooling and heating needs.
What is HVAC?
HVAC stands for Heating, Ventilation, and Air Conditioning, which refers to technologies you equip your homes, offices, factories, and other establishments with for thermal comfort. A good HVAC system is paramount to ensuring that a building’s temperature and air quality are at an optimal state.
Why is HVAC Important?
HVAC units regulate the flow of air, heat, and ventilation in your building. Not only do you want your employees to feel comfortable while inside the office, but you need to ensure that the air they’re breathing throughout the day is clean and clear from pollution.
There’s financial incentive to having the right HVAC solutions as well. In 2018, Forbes cited a study that found energy costs to be one of the top three biggest expenses for 35% of small business owners. Having the right HVAC solutions helps you to conserve energy and save on these costs.
On a national scale, more than $60 billion is spent by small businesses on energy annually. If small business owners are strategic about their HVAC investments, they could save anywhere from 10-30% on utility costs “without sacrificing service, quality, style or comfort…while making significant contributions to a cleaner environment.”
For many small business owners, getting the right equipment is crucial to meeting specific growth requirements. If you invest in high-quality HVAC systems, you can provide comfortable operational temperatures and good air quality for your employees, clients and partners. Without it, you’re likely to spend more than you have to.
Can HVAC be Financed for the Business?
Yes, HVAC can be financed for businesses of all sizes. HVAC equipment financing is a popular financing strategy for small business owners who don’t want to use their existing loans to pay for proper heating and ventilation. It is also an excellent solution for those who do not have the qualifications needed to take out a loan.
Similar to any alternative business loan, HVAC equipment financing gives you more options to pay for specific needs. Certain requirements and qualifications have to be met to get approved for HVAC equipment financing. We’ll uncover all of them below.
What is HVAC Equipment Financing?
Renting HVAC equipment is a viable solution for small businesses that need temporary ventilation. This is an ideal setup for those who will be relocating their store or warehouse. Rather than having to purchasing the equipment, you can opt for HVAC equipment leasing to use the machinery for a short period of time.
With HVAC equipment leasing, you and your lender will negotiate the terms and rates for the equipment you’d like to lease.
HVAC Equipment Financing vs Leasing
Equipment financing is much like taking out a business loan specifically to purchase or upgrade HVAC solutions. Once you get approved, the equipment will be rightfully yours from the beginning of your term. That means, you can decide what to do with the equipment once you’ve paid it in full.
On the other hand, HVAC equipment leasing doesn’t make you the rightful owner of the equipment, even if you’ve paid to use it for an entire year. Leasing allows you to utilize the HVAC solution for a specific period and pay only for the months you need it. When your lease term ends, you can opt to rent it again, return the equipment to the right vendor or owner, or purchase the equipment at a lower price.
New entrepreneurs often look at HVAC equipment leasing because their business is rapidly growing and there’s a high chance they’ll move their office from one location to another. Also, leasing the equipment will not appear on the balance sheet. It is considered a business expense, which you can deduct from your taxable income.
Knowing your options can help you get your business the tools it needs at a much lower rate and better payment terms. It can help you get the most out of your investment, especially when you look at it long-term.
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How to Apply for HVAC Equipment Financing
If you think HVAC equipment financing is what you need for your business today, here’s everything you need to know – from terms and rates to application requirements. In general, equipment financing typically allows you to fund up to 100% of the equipment’s total price. However, this will ultimately depend on your qualifications and the lender you’re working with.
HVAC Equipment Financing Terms
Your HVAC equipment financing is payable in a fixed monthly amortization between 24 months up to ten years. There are lenders who base your repayment terms on the anticipated life of the HVAC equipment. This allows the lender to recover their losses in case you fail to pay back your loan and they have to seize the equipment.
Your repayment terms will be based on a number of factors, including the type and long-term value of the equipment you’re purchasing, your personal and business credit scores, trade history of the business, and number of years your business has been operating. Some lenders will also ask you to show proof of your business’ financial strength, especially if your industry is considered high-risk.
● HVAC Equipment Financing Rates
Just like your terms, your HVAC equipment financing rates will also depend on your qualifications. Some lenders may offer you an interest rate of 5.25% while the others may go up to 40%. In some instances, you may get your equipment financing in as fast as 24 hours especially when your total equipment costs are below $200,000 and your credit score is in good shape.
Take note: you may be required to provide a minimum of 10% down payment of the equipment’s total price. As a rule of thumb, the higher the down payment you provide, the lower your interest rates will be.
Minimum Credit Score Needed to Apply for HVAC Equipment Financing
Getting HVAC equipment financing is a worthwhile option for small business owners because of its flexible and affordable rates. Not to mention, the documents required are much more lenient in comparison to traditional loans offered by banks or credit unions. However, your credit score must be strong enough to get approved for any type of financing.
The minimum credit score requirement for HVAC equipment financing is usually around 620, but some lenders may lower this requirement if you have a strong credit history or if you’ve been in business for longer than five years. Every lender will ask for their own application requirements which is why it’s important to research the potential lenders you want to work with so you can compare and contrast. If you qualify for the financing, some lenders may still implement higher interest rates depending on your qualifications.
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Can You Get HVAC Equipment Financing with Low Credit?
As we mentioned, HVAC equipment financing is a form of asset-based lending, which means that the lender may approve your loan application even when your credit score is low. The lender will ask you to put up a collateral to reduce their risk should you default on your loan repayments.
In which case, your HVAC equipment will serve as your collateral when applying for financing. The good news is, you don’t necessarily have to be in business for years before accessing liquid funds. The lender has the right to take ownership of your equipment if you default your loan.
Can You Get HVAC Equipment Financing with No Credit Checks?
Your personal and business credit matter to lenders because they indicate your ability to repay what you owe. That said, it would be impossible for them not to check your credit especially when 1.) your business industry is too risky; 2.) your business is new; and 3.) you don’t have a wide range of accounts.
If you think your credit score is a roadblock to getting HVAC systems, you may still get funding by putting up your equipment as collateral. The only downside to having bad credit is that you won’t be able to enjoy great terms and lower interest rates. Other than that, you may still get funds to purchase the HVAC equipment you need for your business.
Should You Get HVAC Equipment Financing?
HVAC equipment financing is crucial for startups and new small businesses that don’t have the funds to pay for heavy equipment out of their pockets. If you need to support your business with the right heating, cooling and ventilation solution, then applying for equipment financing will go a long way to meeting your long-term goals.
Ready to apply for an HVAC Equipment Financing?