According to the Small Business Administration, small businesses grew in 2017 at a 3.4% rate. Experts are forecasting this rate to stay on the rise in 2018. Many business owners get stuck when they can’t meet the demand for their products and services.
Are you in the same boat? Do you need new or better equipment to meet the demand in your market? If you answered yes to these questions, it’s time for you to consider equipment financing.
Maybe you have thought about it before but assume your application won’t get approved. Getting the right financing can be the difference between expanding to new markets or having to downsize your operation. Before jumping to conclusions, you must learn the basics about business equipment financing and your options.
Not sure where to start? We’ve you covered. Read on for your guide on all your business equipment financing needs.
Equipment Financing: The Basics
Asking for small business equipment financing scares many business owners. Before applying for financing, it’s important to learn the basics to know what you’re getting into. When a lender approves your equipment loan, they fund your equipment purchase in exchange for your periodic payment including any interest and fees in accordance with your financing terms.
Once you repay your loan, your business will own the equipment free of any debt. Many business owners assume that they have limited options when it comes to business equipment financing. Yet, that’s far from the truth.
You may have more than one option available to meet your financing needs. It’s recommended to choose the financing option that meets your funding and financial needs.
How Can You Get the Financing You Need Today?
The first step in this journey is looking at your business finances. Before applying for financing, there are some factors you should consider.
How much funding do you need? What interest rate do you prefer? How much collateral can you put down for your purchase? These are some questions you should answer before contacting your potential lender.
During your application process, most lenders will ask about your annual and average monthly revenue, time in business, and loan amount, among other details. Also, they will take a look at your personal and business credit scores. Before applying for your loan, it’s recommended you check your personal credit score.
Learning as much as you can about your finances will provide insight into your chances of securing financing for your business equipment. Some of the typical lender requirements are:
- Your business must have operated for at least 12 months
- 600+ personal credit score
- Annual Revenue of at least 150,000 dollars
Even if your finances aren’t doing as great as you expected, you shouldn’t count yourself out. You should contact your lender to learn more about their requirements and what you can do to meet them.
Which Business Equipment Financing Option is Right for You?
Not all lenders offer the same business equipment financing options. It’s important to research their offers before contacting any financial institution. Your eligibility for these options will depend on your finances.
Also, the requirements and terms for each financing option may vary from lender to lender. Here are three of the most popular business equipment financing options.
1. Equipment Loan
When you apply for an equipment loan, your lender may approve your loan for up to 100 percent of your purchase. Your eligibility will depend on your finances and lender requirements. This loan is a great financing option for restaurants and other eating establishments. You may be eligible to receive this loan for up to 250,000 dollars. The term for an equipment loan is for up to 48 months. Some lenders may require a down payment depending on their requirements and your finances.
Your payments on this loan are fixed and fully amortizing. When you finish making your payments at the end of the term, you will own your equipment free of any debt. This financing option is recommended for startups and newer businesses.
2. Term Loan
Term loans are another business equipment financing option you may consider. This loan is repaid over a certain term. Businesses use this loan to fund from their equipment to their operating needs such as employee hiring, advertisement and even repay their business credit card debt.
You may request this loan for up to 350,000 dollars. The interest rate on your term loan may range between 16.99% to 22.99% depending on your finances. The term on this loan is for up to 48 months.
Your payments on this loan are fully amortizing as well. Your lender may require you to put down collateral for this loan. This requirement may vary from lender to lender.
Some lenders have more strict requirements on term loans. This financing option may offer a lower originating fee than an equipment loan. Before applying for this type of financing, it’s recommended to consult your lender to make sure you meet their basic requirements.
3. Line of Credit
If you are looking for a flexible financing option, you may consider applying for a line of credit. This revolving line of credit can help you meet your equipment funding and operating needs.
You may be eligible for a credit line of up to 500,000 dollars. The interest on your credit line can range between 15.99% to 19.99% depending on your credit and finances. If your lender offers an accounts receivable line of credit, they may not require you to make monthly payments.
If you decide to request this type of line of credit, you will borrow against your outstanding invoices. In this case, you will repay your debt when your customer pays their invoices. An accounts receivable line of credit is a great option for many businesses including Home Healthcare Services.
Should You Consider Business Equipment Financing?
Yes, you should consider equipment financing to meet your business needs. Your business cash flow might take a huge blow if you decide to buy the equipment instead. Financing your equipment allows you to keep your business capital to meet your operational needs.
Not all lenders are alike. Before applying for your equipment loan, it’s recommended to research your lender’s requirements and process. Also, don’t forget to take an honest look at your business finances to find out what you can afford.
Do you need business equipment financing to grow your company? We can help. Apply today to find the right financing for your business.