Small businesses take out $600 billion a year in loans. The reason they take out loans? To expand their business.
Expanding can mean anything from investing in an opportunity that allows a startup to reach new heights or even for business equipment financing.
In fact, investing in business equipment through a loan is a great way to get the ball rolling and begin making money without spending your personal savings.
If you’re in need of the essential equipment to get your business up and running, then keep reading to find out how to best use a loan to stock your office or business operation.
What Are Equipment Loans?
Loans like these are self-secure because you are purchasing collateral.
This means that lenders are more generous with the loans as they’re taking on less risk.
Who does this benefit the most? Small businesses and startups. Even though they aren’t as profitable as bigger businesses (at least, not yet), they are more qualified for equipment loans.
This is actually a pretty common form of funding for startups, and it’s part of the reason why business equipment loan interest rates tend to be so low.
With well-known banks such as Wells Fargo, for example, these types ofhave interest rates starting as low as 7.50%. Depending on the type of equipment you’re buying, this might change.
But still, 7.50% interest is much lower than the 10.25% interest rate cap put on other small business loans.
What Can You Use a Business Equipment Loan For?
Most banks and other financial institutions that deal with these types of loans offer flexible spending.
This means that you’re in control of how you spend the money you receive. As long as you can prove it’s needed for business purposes, you’re allowed to allocate it where you need it the most.
This is one of the greatest parts of equipment financing, especially for smaller businesses who really need it.
However (we would triple italicize this if we could), it’s crucial to read the terms and conditions before signing papers for this type of loan.
Because you’ll be able to spend the money however you want, some banks might require a down payment or different type of collateral.
If this is the case, then you’ll want to be sure you understand the lender’s policy regarding personal liens. You don’t want to be caught in the middle of a messy situation later down the road when they’re collecting the debt owed.
How to Maximize Business Equipment Financing
If you’ve taken out a small business loan that allows for flexible spending, then it’s up to you how you spend the cash.
While this sounds great, it doesn’t mean you can go out and purchase brand new MacBooks for all of your staff.
Instead, focus on optimizing workplace safety, employee satisfaction, and the overall working efficiency of your operations.
These are all things that are important to consider when scaling the growth of a small business. And, they’re some of the things that can cost you money down the line if you don’t pay attention to them now.
Not so sure? Businesses all over America lose $1 trillion a year in employee turnover. That’s a high price to pay for simply not keeping employees happy and engaged.
Many employees claim that they’re not engaged because they don’t have the right tools to do their job correctly. This makes it even more important to invest in the right equipment for your business.
Start with the Basics
Unless your startup or small business is totally remote, it’s likely that you’ll need some sort of office space.
If this is the case, then start by investing in the basic equipment. This type of equipment should allow you and your employees to work comfortably and efficiently. Consider investing in:
- Ergonomically correct and comfortable chairs
- Proper lighting to encourage productivity
- Productivity tools (whiteboards, timekeeping software, etc.)
- High-quality and high-powered desktop computers or laptops
- Great internet connection
Any equipment lending loan should more than cover the cost of decking out an office with all of the essentials. If you invest in high-quality equipment and plan it all out right, you’ll find that your investment lasts for many years to come.
Now, all you have to think about is how to use your business equipment loan to really see growth (we’re talking financially and professionally).
Purchasing Different Types of Equipment
As a small business or startup that’s using a loan to purchase equipment, you can classify your purchases in three groups:
- The type that is necessary to perform business functions (i.e. a brick oven for a pizzeria or a heat press for a clothing brand)
- The type that increases productivity and engagement (i.e. computers with great graphics cards to allow designers to do their work quickly and efficiently)
- The type that can carry your business into the future (i.e. higher quality kitchen appliances or state-of-the-art printing services that will ensure you beat out your competition)
If you don’t feel like a piece of equipment falls into one of these three categories, it’s probably not that important.
Even if you’ve taken out $20,000 in equipment loans, it doesn’t mean you have to spend it all. Remember this as you begin to make large purchases.
Ask yourself: “How can this purchase help grow my company in the long-term?”
If it can’t, then it can wait.
Equipment That Helps Businesses Function
In terms of business functions, equipment is longer lasting than supplies. This includes machinery, furniture, computers, machines and maybe even vehicles.
When figuring out how best to spend your loan, it’s important to understand those distinctions.
If your business can’t perform your service, create your product, or carry out basic daily functions without a specific piece of equipment, then it’s considered necessary.
Purchase this type of equipment first.
Try working a day with all of the equipment you have purchased and see how things flow. If you’re able to perform basic functions and carry out basic tasks, great!
If you find yourself in need of a few more items, then purchase those before moving on to other equipment.
Equipment That Increases Productivity
As a small business, your biggest hurdle is growth, whether in terms of financial growth or physical growth in regards to employees.
So, you’ve used your business loan to purchase all of the necessary equipment and can carry out daily tasks. Your next step will be to invest in equipment that makes doing those tasks easier.
This type of equipment can be more ergonomic chairs, updated office spaces, higher-quality computers, and even project management software.
Ask your employees (if you’ve got them) what would make doing their job easier and more comfortable. Invest in equipment that caters to those needs.
Equipment Designed for Long-Term Growth
You’ve taken out an equipment loan. You’re going to have to pay it back. So, why not invest in tools that will truly grow your business well into the future to make paying it back easier?
State-of-the-art machinery and smart technology are two ways to accomplish this. However, it could be as simple as investing in the newest graphic design programs that will take your marketing materials to the next level.
However you decide to spend your cash in this category is up to you, but always keep the future in mind.
Invest wisely and really focus on ROI.
What’s Hot in the Business Equipment World?
Speaking of looking ahead to the future, it’s important to consider what kind of business tech is hot right now.
Not only can smart tech help increase working efficiency for your employees, but it can also increase customer satisfaction.
Happier employees? Happier customers? That’s a pretty smart way to invest an equipment loan.
Think about investing in smart business technology that:
- Protects your data
- Advances your strategic planning
- Allows for encrypted communication
- Transform your social media efforts
- Remotely manage teams
- Permit voice-activated scheduling and reminders
Apps, software, and integrated voice assistants can perform all of these tasks. The best part? They all qualify as business equipment.
To make your investment work even more for you, consider gifting these types of smart devices to employees as incentives.
Give a Google Home to your top-performing salesperson. Purchase a year’s worth of scheduling software for your top project manager. Or, hold contests each month for the most organized person on Slack.
Getting Business Financing Right
There’s really no right or wrong way to spend a business loan, especially as a startup.
Begin by assessing your most urgent needs and figuring out which types of equipment will help your business grow and succeed.
Once you’ve got that figured out, invest your loan in a manner that seems profitable and productive. Focus on the long-term and keep your employees in mind and you’ll undoubtedly see success.
If you’re still not sure how to properly scale your small business or need help with business equipment financing ideas, check out our blog. You’ll find resources designed for entrepreneurs just like you.