Equipment Loan: Is an Equipment Loan Right for My Business?

Matthew Gillman

October 3, 2018
Is an equipment loan right for my business?

The first thing an emerging business needs after a great idea is starting capital. For new business owners, this can be one of the hardest things to come up with. Many entrepreneurs take out loans on their mortgage or spend their life savings to start their first (or second) business. Doing this comes with a great deal of risk, which for many, is too much, making it an unacceptable option.

This is why Equipment loans can be the perfect solution. There are specific loans for business equipment, offering many benefits that traditional business or personal loans do not. This becomes the quickest means to an end for a business owner who wants and needs to get their business off the ground sooner, rather than later.

Here are 5 essential things that you should know about equipment loans.

No Credit? No Problem

Many business owners with great ideas never see their concepts come to life because they can’t get the proper funding. Of those, many business owners avoid loans because they have a bad credit score or no credit at all. This can disqualify you from personal loans, home loans, and some business loans, but it doesn’t stand in the way if you are looking at applying for an equipment loan.

In most cases, you can still apply for an equipment loan even if you have bad credit.

Tax Deductible Section 179

Many business expenses are tax deductible if you can prove that the cost directly relates to the operating costs of your business. If you want to know exactly what expenses you can count as deductible, we advise that you speak to a professional tax practitioner – every business should have one.

Equipment loans can often be partially deducted from tax under Section 179 of the Tax Act.

Equipment Loan Interest Rate

Interest rates often discourage new business owners from seeking capital by taking out a business loan – sometimes the interest rate can mean paying back as much as 40% of your loan, or even more in the long run. Are you comfortable thinking the bank is making more money from your business than you are?

Equipment loans, reserved specifically for equipment to keep your business operating smoothly and efficiently, usually comes at reduced interest rates which are considerably lower than personal or business loans.

Some loans include initiation fees, while others involve a lot of conditions that determine just how much you’ll be paying back in the end. The fees and interest rates alone can be what sinks an emerging business.

Paying Back Equipment Loans

The terms of paying back a business loan can be harsh – and if your business hits a rough patch, it could drive you right into the ground. This is too much of a risk for many business owners, which means many ideas never come to fruition.

Usually, business and personal loans must be repaid quickly. There are some loans that offer an even shorter payback period, but at a higher interest rate. Some business owners become tied up with these types of loans out of sheer desperation due to a sudden emergency.

Equipment loans give you up to five years to repay borrowed funds, and at a much lower rate of interest than a traditional loan.

Equipment Loans versus Traditional Loans

It’s important that as a business owner you weigh your options before signing any paperwork. Look at different loan providers, and the terms they offer. Ensure that the company is registered to provide loans. It also doesn’t hurt to take a look at some reviews from previous customers.

  • Equipment loans can only be used to pay for purchasing, repairing, or maintaining equipment – which is limiting for business owners who need to urgently pay other bills. For many business owners, an equipment loan is the perfect solution.
  • Traditional loans can take a long time. Lenders often ask for a lot of paperwork and generally want to see a solid credit history, which many new business owners do not have. On the other hand, qualifying for an equipment loans is less stringent.
  • Traditional loans often require collateral – which is offered to the loan provider if the loan cannot be repaid in the specified time. Equipment loans require only the equipment itself to be listed as collateral, so business owners do not have to worry about risking their business, or their capital, over a single loan.
  • Traditional loans require a good credit score. This requirement can stand in the way of a good idea or stop a company from moving forward with a business plan. However, if you can get your business off the ground with an equipment loan, you can still acquire other loans and continue to fulfill your immediate and future business plans.

 

Matthew Gillman

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