Equipment financing is one of the most common ways to get the gear needed to grow your small business. A lender will advance funds for a piece of equipment, and you pay it back over time, usually in monthly installments. The amount you’ll have to pay each month depends on several factors, including how much money you borrow, how long you use it, and what kind of interest rate your lender offers.
When choosing an equipment financing company, consider these six tips
- Compare rates from at least three lenders before choosing one-this should take less than an hour.
- Make sure each lender quotes its interest rate using the same term length to be on equal footing when comparing them side-by-side. Then take a close look at each quote’s monthly payment, so you know exactly what your payments will be once approved for financing with one or more lenders.
- You may want to consult with an accountant or other financial advisor before deciding which lender suits your needs best.
- Consider whether there are any hidden fees associated with using this type of loan, like late payment penalties, before signing any agreements with a potential lender.
- Be aware that some businesses may be eligible for tax deductions if they use certain types of business equipment as part of their daily operations.
- If possible, try not taking out more than one loan from different sources at once since this will make it difficult for those paying attention during tax season when filing taxes later on down the road.
Why Financing is a More Cost-Effective Solution than Equipment Leasing
While leasing will save you some cash upfront, it comes with hidden costs that can quickly add up and make your situation far more expensive in the long run. Here’s why:
Leasing requires monthly payments, whereas equipment financing lets you pay for the equipment over a longer period. You’ll have to make fewer payments each month under financing and therefore pay less interest.
Leasing often involves high down payments. This means that you’re paying interest on your entire balance from day one, not just what is left after making those down payments and paying off any remaining monthly payments on schedule.
Is Qualifying for Equipment Financing Easy?
Equipment financing is a smart option for businesses that need to buy equipment but can’t afford it. But what if you’re worried about your credit history?
Essentially, qualifying for equipment financing doesn’t necessarily mean that you have the best credit score globally. In fact, many lenders will consider multiple factors when deciding whether or not to grant you a loan.
Your personal credit history isn’t the only factor that lenders consider. They also look at how long your business has been operating and how much profit your company makes in a year, alternatively known as net worth.
Finally, equipment financing is ideal for getting the equipment you need while avoiding paying off the entire amount upfront. With equipment financing, you can pay your loan back over a longer period than a typical business loan. This is because the repayment terms are customized based on your business’s unique financial situation and how long the equipment will be useful. Compared with a traditional bank loan, the lender will also consider how much money it makes sense for you to borrow.