As a small business owner, you are probably well aware that equipment sometimes stops performing properly or breaks down completely. Or you might be in a situation where your business is booming, and you need more equipment to keep up with the demand to maximize profits. In either scenario, buying equipment outright might be impossible, and you have to consider another option: equipment financing.
What is equipment financing?
Equipment financing means securing a loan to purchase or lease the equipment needed for your business. This type of loan can be used to buy any hard asset such as a vehicle, printer, kitchen equipment, or a boardroom table and chairs. It usually requires regular payments including principal and interest over a certain time frame, and the lender can require the equipment itself to be served as collateral against the debt.
What if I can’t make my loan payments?
If you don’t pay your loan, the lender could put a lien on your equipment, along with other business and/or personal assets, and it could be repossessed. Once you pay the loan in full, there will be no liens and the equipment will be yours. Because the lender can recoup assets through repossession, equipment financing has a lower risk than other types of loans.
What are the qualifications for an equipment loan?
Generally, qualifications for an equipment loan are pretty similar to a traditional loan, but they can vary. So choose a lender that has the minimum requirements you can meet.
Like most loans, your personal credit score will most certainly be considered before loaning you funds. Higher scores improve the chances of securing the loan and getting the best rates, and a good credit score of 600 or higher is usually required.
Lenders often require that you have a detailed business plan describing your business and a possible path to profit and growth. The time your company has been operational along with annual revenue will be considered. Common requirements often are at least two years in business and annual revenues of more than $250,000. And don’t be surprised if you are asked to produce your personal financial statements and a business balance sheet to prove the financial condition of you and your company. Financial equipment lenders also like to know that you or someone in your company has the knowledge and ability to service the equipment and keep it in good working order.
Where can I find equipment financers?
Lenders for equipment loans range from national lenders, such as big-name traditional banks, to online lenders. Often online lenders have more relaxed requirements. The online lenders might also be a better choice for a startup business or one with less-than-stellar credit. Contact one of our specialists at Affinity Beyond Capital to find out your loan rates.
If you don’t meet the minimum loan requirements, alternative equipment financing options include a captive lessor, which is an equipment dealer that finances your loan themselves. You could purchase equipment by using a credit card, invoice financing, or borrowing the money from friends or family.
Ready to grow your business? Contact us about equipment financing today!