Regardless of their industry, the largest business expense most companies face is purchasing professional-grade equipment. From office networking systems like computers and printers, to farm implements and fleet vehicles, everyone needs the proper tools to do their job. Rather than save up or outlay a tremendous amount of cash up front, many companies opt for an equipment financing to spread the payments out while still having the equipment when they need it. Here’s how it works.
What is an Equipment Financing Loan?
Equipment financing loans are typically granted by traditional financial institutions like banks or credit unions. The business applies for a certain dollar amount of funding, and if the bank approves the loan, the funds are released with an agreed-upon repayment schedule and rate of interest.
Uses by Industry
We touched upon some examples of equipment needs earlier, but here are a few more. Manufacturers can use equipment financing to purchase everything from their workers’ small tools to their large machines. Restaurants can use it for refrigerators, displays, and kitchen tools like slicers or ovens. Salons can use it to outfit their business with chairs, washers, and sinks. Contractors can use it for vehicles like forklifts or trucks. Essentially, if it helps your company make its product or provide its service, it qualifies for equipment financing.
Advantages
In addition to the obvious advantage of equipment financing allowing you to have crucial work tools, it provides other benefits as well. First off, many companies struggle to decide between equipment leasing and financing. While leasing may be a good fit for some companies, one of the advantages of financing is that you automatically own the equipment; with leasing, it is the property of the lender until the lease is done. By owning, it becomes an asset that may help your company secure additional funds in the future. Making regular payments on time and paying off the loan will also help your company’s business credit score.
How to Apply
Applying for equipment financing is much like applying for a mortgage or vehicle loan in many ways. While the process is similar, the criteria is a major difference. You will need to provide an explanation of how the equipment will improve revenue or efficiency, and, if possible, projected figures to calculate a return on investment.
Very few businesses can survive without securing financing at some point. Using it to purchase or upgrade equipment is a practical and potentially lucrative investment.
