The Business Owner’s Guide To Equipment Loans
Any small, or large, business will need to upgrade, improve, or replace certain pieces of equipment at some point. Equipment loans are a lifeline for any business owner in this situation. When it comes to running a small business, they might be the difference between success and failure. However, you may be wondering what the advantages of equipment loans are and how to obtain one. What factors do lenders use to decide whether or not to accept equipment loans?
Let’s start by discussing what equipment loans are and why you might need one.
What is the definition of an equipment loan?
Loans for the purchase of business equipment are known as equipment loans. To process, manufacture, or generate their product, businesses may frequently need to buy, replace, repair, or update numerous types of equipment. Medical and dental medical equipment; restaurant ovens, cookware, tables and chairs, linens, and catering supplies; phone systems; computer monitors, printers, copiers; furniture, tools, commercial vehicles, specialized machinery, industrial equipment, and more are all examples of equipment. All of this equipment is required for your businesses to run at peak efficiency and productivity.
But what if your equipment is old, outdated, and in need of replacement? You may have the option of purchasing new equipment altogether or leasing it.
Are you looking for a loan or a lease?
When it comes to business equipment loans, keep in mind that you can also lease the equipment. Here are some things to think about while deciding between leasing and acquiring an equipment loan.
Equipment Leasing Most equipment leasing contracts do not need a down payment. This is especially advantageous for businesses with limited or no capital. If a down payment is necessary, it is usually tiny in comparison to what would be required for a standard loan.
You can finance roughly 100% of the cost of the item or goods plus around 20% – 25% of the so-called “soft costs” with a lease. Taxes and delivery fees are examples of soft costs.
Leasing allows your small or online business to be more flexible. You have the choice of returning the item at the conclusion of the lease or purchasing it for a modest fee once the principal of the loan has been paid in full.
Equipment loans
Each lender’s terms will vary, but on average, you can finance roughly 80% of the total purchase price of an item with a loan. When you buy your equipment and finance it with a loan, you own it from the start.
For the majority of small business equipment loans, a 20% down payment is usually required. The item or goods you buy with the equipment loan serve as collateral for the loan.
Why Take Out a Business Equipment Loan?
- To replace/upgrade obsolete or out-of-date equipment
- Add to your existing inventory of equipment.
How to Get a Loan for Business Equipment
Most equipment loans demand excellent credit. After all, it’s a financial investment in your business’s growth and profits. You might choose to apply for a loan at the bank where you now do the majority of your business. You could want to look into a nontraditional lender like G-Force Funding, an online lender that helps small and online business owners that need quick funding to build their business. Business loans from G-Force Funding – sometimes known as G-Force Funding lines of credit – could be a viable choice. A business loan provides cash to a business in exchange for a percentage of future credit card sales.
A business loan may be a particularly suitable alternative for your small or online business if you have had strong sales but have little or low credit. Getting the financing you require when you require it can spell the difference between your business’s success and failure.Â
Note that if you have a prior bankruptcy on your record, your business has been in operation for less than a year, or you do not currently have the ability to process credit card payments for your customers, you will most likely be denied a line of credit for an equipment loan. Before you apply to a traditional lender or a nontraditional lender like G-Force Funding, be sure you have all of these items in place.
Banks and other traditional lenders are typically hesitant to issue standard equipment loans to small or online businesses with poor or bad credit. Such businesses may be regarded “too hazardous” and will have a tough time obtaining a standard bank loan to fund their operations. This can be an issue for many small and online business owners who require money to buy, replace, or repair old or malfunctioning equipment. A business loan can help in this situation. A business loan provides you with the funds you require in a timely manner, allowing you to continue running your business’s day-to-day activities.
The Advantages of Equipment Loans
Approval in a flash –
- Equipment loans are typically authorized (or denied) promptly. Consider applying for a small business line of credit with a nontraditional lender like G-Force Funding to expedite the process. G-Force Funding is an online lender that provides quick cash for a variety of needs, including inventory, equipment upgrades, and marketing campaigns. In addition, G-Force Funding considers your request in a matter of minutes. That means you’ll have the extra cash you need sooner, allowing you to buy or replace the equipment you need.
- Monthly payments on your equipment loan may be deductible as a “operating expenditure” for tax purposes. To be sure, check with your lender and a business tax attorney.
- You’ll have more money in your pocket – Keep cash on hand in case you need to make any more purchases for your business. Consider the situation in which one of your delivery trucks breaks down and needs to be replaced. Alternatively, your restaurant’s oven may be malfunctioning. Equipment loans can be used to replace or repair this very expensive – and critical – piece of equipment instead of using money from your business’s profits to pay for it.
- Payment Schedule Flexibility – You may be able to take advantage of flexible payment choices depending on the lender with whom you acquire your business equipment loans. This is useful while you strive to replace the equipment, keep your business going, and make payments on your business equipment loans. Depending on the sort of loan you obtain, some lenders may give you the choice of making monthly, seasonal, quarterly, biannual, or even annual payments. Note that you might be eligible for a 90-day delay on your equipment loan repayment. When it comes to equipment loans, consult with your lender to see what works best for your business.
- About a quarter of “soft costs†are covered — Fees, delivery charges, and freight charges are examples of soft expenses. Again, each lender is unique, so do your homework to find out exactly what fees are associated with the loan and which fees you will be liable for paying.
The Procedure for Obtaining an Equipment Loan
As your business grows, you’ll need to refill inventory, perform daily, monthly, and annual maintenance on important equipment, and ensure that your product or services are delivered on time. Small and online business owners might benefit greatly from equipment financing.
Step 1: Check your credit report to see if it’s in excellent shape.
Have you ever had a problem with late credit card payments? Have you missed payments on some of your loans? Do you have a terrible credit history? When you apply for equipment loans, all of these factors will work against you. Most lenders will not give a small or online business a loan if they believe it is too risky. Having excellent credit is one of the most critical – if not the most crucial – small business financing requirements. The importance of preparation cannot be overstated. Make sure you’ve done your homework ahead of time. Know your FICO score, which is a summary of your credit risk used by lenders to decide whether or not to offer credit and, if so, at what rate. Using free web resources like www.fico.com, you may determine your credit risk and determine your FICO score.
Prepare to exhibit not only your corporate credit history, but also your personal credit history when meeting with potential lenders. Do you have credit card debt? A couple of missed automobile payments? Are you in default on your student loans? These kinds of issues will cause the equipment loan approval procedure to be delayed, if not completely halted. In order to get a small business loan, you’ll need to have good credit. Work hard to improve your credit and correct any credit reporting issues (*Note: credit reporting inaccuracies do happen. Take the time to thoroughly study your credit reports to verify accuracy. Any irregularities should be reported as soon as possible).
Step 2: Create a well-thought-out business plan.
Lenders, both traditional and nontraditional, may examine your business plan as a guide to your future success. Determine the nature of your business. Give a brief description of your product or service. Detail your present cash flow system and set a bold, but achievable, set of goals for your business’s future expansion. Identify your target market, as well as the socioeconomic and demographic characteristics of your core market, and then detail how your product or service will meet a need in this market. Finally, at the very beginning of your business plan, describe your complete business strategy in a few paragraphs and title it the “Executive Summary.” This will provide lenders with a good overview of your business. A strong business plan doesn’t need to be hundreds of pages long. It should, however, be thorough and well-considered. There are numerous business plan templates and examples available online. Find one that works for you and put it into action as part of your equipment loan strategy.
Step 3: Make sure your personal resume is up to date.
A personal résumé is a fantastic resource to have when applying for equipment loans, even if you aren’t applying for a job. Character attributes that will support the small or online business plan are sought by all types of lenders, including traditional bank-based and atypical lenders. They want to meet the person who runs the business. And, because you’ll be accountable for the loan’s repayment, lenders will want to make sure you’re a good credit risk before approving any equipment loans.
Step 3: Prepare cash flow statements ahead of time.
Most lenders require you to be able to show your money coming in and leaving out in current terms before they will approve any type of equipment loan. Make sure your funds are in order. Engage the services of a certified public accountant to examine your financial documents. You’ll need to make sure your personal and business financial statements are both in order and bulletproof, which means your reporting is accurate and ethical. It’s one of the best measures of how well your business is managed in the real world, and it’s one of the most important factors lenders look at when evaluating small business loan applications.
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