5 Tips on How to Apply for Equipment Financing
If your equipment contributes to the success of your small business, you know that if you don’t have high-quality equipment, it can affect the quality of the products or services you provide. However, the latest high-quality equipment comes at a steep price; which most small business owners cannot afford upfront. When it comes to buying equipment, it might be tempting to settle for cheap rather than quality. Fortunately, you don’t have to. With equipment financing Detroit, you can easily secure equipment loans for your business.
Equipment financing allows you to acquire the necessary equipment without having to drain your business bank account. However, just like other kinds of business loans, potential lenders only provide financing to eligible businesses.
Before applying for equipment financing, here are four insider tips that will help you qualify:
1. Pinpoint the Reasons for Needing the Loan
Potential lenders need to know why you need to borrow money from them. You need to be able to answer specific questions they might ask when you apply for equipment financing, such as:
- Why do you need an equipment loan?
- Why do you need that specific kind of equipment?
- How will the new equipment impact your business overall?
These are just some of the question’s lenders may ask, so it’s better to prepare beforehand.
2. Increase Your Chances of Qualifying
As you search for lenders, be sure to find out what their eligibility requirements are because this varies from lender to lender. It’s important you meet their basic requirements before applying to avoid wasting your time. Some of the common factors a lender looks at may include, but are not limited to:
- Credit Score
- Time in Business
3. Determine If Your Business Can Afford A Down Payment
Some lenders ask for a down payment as a precondition to approving an equipment loan application. Potential lenders want to see that you’re vested in purchasing the equipment. It also shows them that you’re confident you are able to repay the loan. Generally, down payments range from 5% to 10% of the total equipment cost.
If you’re unable to provide a down payment, chances are, you’ll be denied the financing. Your options then amount to searching for a different lender, improving your current financial situation, and, or attempting a different financing solution.
4. Know Your Options
When you start applying for a loan, keep in mind that the application process will vary depending on the lender. It’s smart to compare your options before deciding, but make sure you don’t apply to multiple lenders at once because it can affect your credit score. Furthermore, don’t take out another loan if you’re paying off a previous one. If your equipment financing is not enough to cover your needs, then it’s best you look for a different financing solution rather than seeking another loan.
5. Prepare the Necessary Documents
Before lenders will approve your application, they would naturally want to know everything important about your business. It’s important to prepare the necessary papers and documents before you even apply for a loan. Generally, you’ll need business plans, credit reports, proof of ownership, cash flow statements, tax returns, bank statements, insurance policies, balance sheets, and licenses.
For equipment financing applications, you may need to have a contract or quote from the equipment seller. Keep in mind that the exact list of documents will vary from lender to lender, as well as the type of loan you’re applying for.
Purchase or Lease Equipment?
The answer to this question depends on how the equipment will affect your company.
For equipment purchases, a loan usually involves a 20% down payment. Additionally, you need to repay the loan in fixed monthly payments throughout a specified period. The equipment is yours to keep after your pay back the loan. If you default on the loan, the lender can repossess the equipment since it’s used as collateral.
On the other hand, equipment leasing is a better solution for new companies that can’t afford down payments. Equipment leases work similarly to renting an apartment; you pay a fixed amount per month without down payments. After the lease has expired, you can return the equipment, buy it, or begin a new lease. Leasing is also a great option if the equipment you’re looking to use will become obsolete in a few years.
Equipment Financing Detroit
Equipment financing Detroit is a great option for business owners looking to purchase or lease equipment, thanks to its low-interest rates and quick disbursal times. However, it’s important to consider the drawbacks of equipment financing before you apply, such as short repayment terms or hefty down payments.