Running a business requires the right equipment. It does not matter if you provide services or products, your small business needs certain tools to operate.
Businesses just getting started do not always have enough capital to invest in the necessary equipment. Some established businesses may not have enough saved to repair or replace equipment as it breaks down. That is where equipment financing comes in.
Learn all about equipment financing and how it works below.
What Is Equipment Financing?
Unlike a working capital loan that you can use for any financial need, equipment financing only applies to the purchase of equipment.
You borrow however much you need to pay for the piece of equipment, like an X-ray machine or commercial vehicle. Then you make payments on that debt. Once you pay it off, you own the equipment outright.
Lenders structure their financial agreements differently, so pay attention to the offered terms. Many require a personal guarantee or blanket lien.
A personal guarantee puts your personal assets up for collateral if you cannot make payments. A blanket lien does the same with business assets, including the equipment in question.
How Do Equipment Loans Work?
An equipment loan is the most common form of equipment financing. You apply for the loan to purchase a piece of business equipment and the equipment becomes your collateral.
Most lenders require a 10-20% down payment and offer to finance the rest although you can find some lenders that offer full 100% financing.
The repayment period depends on your lender, how much you borrow, and your financial situation. You may repay the loan in as little as 36 months or negotiate payments over 10+ years. The annual percentage rate standard for equipment loans ranges between 8-30%.
Big Benefits of Equipment Loans
The best part about applying for an equipment loan is the fast response rate from lenders. You can generally get a response in less than 2 business days.
Equipment loans may also qualify as an operating expense that you can deduct on your taxes. Double-check with your business tax accountant and your lender to see if you qualify for this deduction.
Obtaining a loan for this major business purchase leaves you more disposable cash as well. You can keep the money on hand for other business necessities and normal expenses.
Finally, most lenders offer a flexible payment schedule so you can pay back the loan in your time and on your terms. This process means you will not end up turning away customers because the pizza oven broke or miss deliveries when a truck breaks down while still being able to keep the lights on.
Apply for Small Business Funding Online
Equipment financing helps small businesses obtain funds quickly so they can get the equipment they need to operate. Now you should better understand your options and why it is important to consider taking out an equipment loan rather than using other finance options. Next, you need to find a funding partner to apply.
Check out Formula Funding to learn your equipment financing options. They offer to fund small businesses in more than 900 industries. They will even give you a decision in less than 24 hours.
Why wait? Contact Formula Funding today!
Combining a high level of personalized service with a cutting-edge lending platform, Formula Funding delivers an unparalleled banking alternative. We offer a fast and efficient option to get your business the critical funding it needs without the red tape. We work with all credit grades, tax liens, judgments, and charge-offs – something unheard of at a traditional bank. Since 2010 over 15,000 small business owners have used our funding sources to grow and expand.