The equipment your company uses can make or break your business. Business owners know the importance of having the latest tools of the trade. However, the costs associated with purchasing high-quality equipment can be expensive, especially for startup companies. Fortunately, equipment financing can help.
2 Types of Equipment Financing
There are two main types of equipment financing: equipment leases and equipment loans. Before you decide to finance your equipment needs, you need to know the difference between the two.
1. Equipment Leasing
Equipment leasing is a great choice for companies that want to save money and still use the latest equipment and machinery. You don’t need to shell out a substantial amount of money for the initial down payment. This frees up your working capital, allowing you to allocate funds on other business expenses, like payroll or utilities.
If you’re looking to save more money, paying for a lease is cheaper than taking out a loan. Once your leasing agreement has ended, you have the option to buy the equipment or lease another piece of equipment.
2. Equipment Loans
On the other hand, an equipment loan is money you borrow to buy equipment and machinery that’ll help your business grow. Lenders will give you a lump sum and you can repay the loan at regular intervals until you’ve paid off the loan amount. You will then get to keep and own the equipment.
Equipment loans are often unsecured. This means you do not have to provide any collateral to secure the loan since the equipment you’re looking to purchase serves as one. If you take out an equipment loan and fail to repay it, lenders can seize the equipment you purchased.
Which is the Better Option?
The type of equipment financing you choose should depend on two important factors:
- The amount of money you have allocated for equipment; and
- How long until the equipment becomes outdated.
If you have enough money for a down payment and the equipment will last a long time, it’s best to choose an equipment loan. On the other hand, if you don’t have the capital needed for down payments or the equipment will only last for a few years, equipment leasing might be a better choice.
Why Equipment Financing is a Great Loan Option
Regardless of the size of your company, buying equipment will take away thousands of dollars from your much-needed working capital. Equipment financing lets you spend your working capital elsewhere by providing separate funds for equipment purchases. Whether you need heavy machinery, data processing equipment, computers, printing machines, or vehicles, equipment financing can help.
1. No Need for Collateral
Most lenders don’t require you to pledge any personal or business assets to secure the loan. This way, you can keep your costs at a minimum while purchasing new equipment for your company. Cash flow is crucial for small businesses and lenders know that. For this reason, they usually cover the entire cost of the equipment up front. But keep in mind that the terms of the loan depend on several factors, such as revenue, credit score, type of equipment purchased, and more.
2. Better Cash Flow and Expense Management
Once you receive the funds for new equipment, most lenders require you to pay regular monthly payments. The fixed payments help business owners manage cash flow and make a budget for monthly expenses and unforeseen expenditures. If the time comes when you need to replace existing equipment or pay for unexpected costs, you’ll have the necessary funds at hand.
3. Apply for Other Types of Loans On Top of Equipment Financing
Did you know that most startup companies lose money in the first two to three years of operation? For this reason, small business owners need to have access to other sources of funding, other than equipment financing. Fortunately, equipment financing allows you to do just that. When your funds are running low, you’ll need to apply for business loans to cover daily expenses, as well as marketing, payroll, inventory, and more. You can apply for a business loan from banks or from alternative lenders.
4. Snag the Latest Technology
Technology is continually evolving. The new technological trends emerging in your industry will affect small businesses, whether you like it or not. Tablets, computers, and phones become outdated; new software for managing inventory gets invented, or your current point-of-sale system needs an update. Equipment financing enables small business owners to access the latest, most efficient technological advancements specific to your industry. By updating the software or the apps you use, you will positively impact your company’s productivity as well as improve business operations.
Apply for Equipment Financing Today!
Almost every type of business needs certain equipment for daily business operations. Which is why equipment financing is one of the most popular funding options among small business owners. Regardless of whether you choose a loan or a lease, you’ll still enjoy the benefits of equipment financing.