Many businesses require equipment to operate and function. Whether it's heavy equipment for a construction company, machinery for a manufacturer, or kitchen equipment for a restaurant, these examples show that businesses rely heavily on equipment to exist. The cost of equipment can be quite pricey and overwhelm most small businesses without some type of equipment financing.
What is Business Equipment Financing?
Equipment financing is a loan or a lease specifically tailored to allow businesses to purchase a specific piece of equipment (hard physical asset) for operational needs. Common examples of such equipment include cutting-edge office tech like smart whiteboards, commercial ovens for culinary enterprises, and forklifts for logistic centers. When understanding how equipment financing works, it's key to know that the business owner utilizes the item itself as collateral type within the equipment financing agreement.
This specialized financial service is often provided by equipment financing companies, who offer terms and costs that may be more advantageous than traditional business loans or lines of credit, thus enhancing a business's cash flow management. FAQs about the process often reference the benefits, including the potential for 100% financing and tax-deductible payments. Additionally, equipment leasing leases often present more attractive terms than outright purchasing, promoting better cash flow and providing options to purchase, continue leasing, or return the equipment at the end of the lease term.
Maximizing Benefits with Equipment Financing Options
Many businesses operate using expensive equipment or machines. However, when those machines break down, or technology standards move forward, securing transportation equipment financing or a new line of commercial truck financing can ensure you're not left behind by the competition. It's essential to examine equipment loan eligibility requirements to ensure that your business qualifies for the most advantageous terms, including potential deals with an equipment vendor who offers favorable financing options.
The most common kinds of equipment bought with funds from equipment financing loans include:
- Computers, Fax Machines, Copiers, Etc.
- Industrial Kitchen Equipment
- Manufacturing Equipment
- Vehicle Fleets
- Construction Equipment
- Medical Tools and Machines
- Manufacturing, Packaging, and Shipping Equipment
- And So Much More!
Small Business Equipment loans are not only used to finance used or new equipment but also to manage inventory, acting as a vital resource that keeps businesses competitive. Involving into equipment leasing programs or looking into in-house vendor financing can lead to significant perks such as tax deductions that contribute to overall tax savings for your business. Additionally, when exploring your options, remember that truck financing solutions tailored to your fleet size, with up to 100% financing to minimize cash outlay, can vastly streamline capital management. Ensure you explore all options, including those from a specialized equipment vendor, to determine what works best for you and your business. These could provide tax savings while upgrading to the latest equipment.
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Features of Commercial Equipment Finance Companies
With equipment financing through AdvancePoint Capital, small businesses can be approved for a lease or equipment loan ranging from $500 to $150,000. In addition, the approval decision from your lender can happen within seconds when loan amounts are under $10,000. Yes, it is really that fast!
However, before applying for an equipment loan, you need to ensure you’re eligible. To find out if you qualify, all you need to do is complete the simple one-page application and provide information about the equipment you want to purchase for your business.
If you want equipment financing but have bad credit, we can help you find financing for your equipment without any credit check. Regardless of your credit, you can be approved for this type of business loan because the collateral is an automatic part of the borrowing process and provides protection from risk for your lender.
Below, we look at the basic features and requirements you need to know before applying for an equipment loan through AdvancePoint Capital:
Business Equipment Financing Rates and Loan Amounts
AdvancePoint Capital equipment loans are an excellent solution, offering competitive interest rates tailored to meet your equipment financing needs. Payment options are flexible, and lenders are willing to work with businesses given the more predictable risk associated with equipment financing. Whether you prefer leasing or owning, this option is one of the most adaptable business funding solutions, catering to a variety of operational requirements. Bank of America's equipment loans are also an option, extending their use from heavy-industrial to small office equipment purchases.
Analyzing your business's requirements and understanding terms such as loan repayment terms are crucial. For robust funding like an SBA 7(a) loan, the long repayment terms and low-interest rates make them suitable for significant investments in equipment. Always remember to evaluate different offers to find the best combination of interest rates, fees, and repayment terms that suit your business needs.
If your business relies on equipment to operate, financing this equipment can have a beneficial impact on your operations. Here are some of the incredible features equipment financing has to offer:
- Loan amounts from $500 up to $150,000
- Decisions in seconds for funding requests under $10,000
- Leases and repayment terms up to 60 months
Qualifying for Equipment Loans
Getting a loan through traditional lenders like banks can be a challenge. You have to jump through hoops and have excellent credit. Plus, these lenders want you to provide extensive documentation and wait weeks or even months for a final decision. That’s not going to work out when you need access to your money now for equipment repairs and purchases.
The requirements of conventional lenders can be demanding and may not work for you or your business. Unfortunately, during the time spent applying for an alternative small business loan, your business equipment may not be working cost-effectively or may not be functioning at all, cutting into your bottom line.
At AdvancePoint Capital, you can get quick approval through minimal paperwork if you qualify. Before considering applying for equipment loans, you should:
- Collect all information related to your business to fill out an application
- Review and repair credit if possible.
- Gather necessary documentation such as bank statements and an invoice or description of the equipment you intend on purchasing.
Qualifying for equipment financing isn’t necessarily complicated, but understanding eligibility is essential and should be considered before taking this route. While all lenders work differently, our qualifying standards involve three main components:
1. Credit Score
Your personal credit, as evaluated by credit bureaus, can play a significant role in acquiring the equipment loan you need. With equipment financing, all types of credit are considered, but creditworthiness, often reflected in your FICO score, can significantly impact your loan terms. It's advisable to have a FICO score of at least 625 to ensure more favorable loan conditions. Online credit ratings, offered by business credit bureaus, provide valuable insight, helping you understand where you stand and the current strength of your credit profile.
2. Time in Business
You’ll need to demonstrate that your startup business has been actively operating for a minimum of six months to meet the requirements set by most small business lenders. Before they approve you for a startup business loan or equipment financing, lenders look for tangible evidence of an established business trajectory aimed at growth and sustainability, which can often be effectively illustrated by a robust business plan. At AdvancePoint Capital, we support startups by requiring the business to be established for just six months, ensuring accessibility to capital for those who have recently embarked on their entrepreneurial journey. Conventional lenders may necessitate a more extended period in operation due to higher risk factors associated with startups, making it essential to plan ahead when considering financing options.
Remember, the eligibility criterion for an equipment loan will include not only time in business but also comprehensive revenue data, which helps in conveying financial stability and profitability potential to prospective lenders.
3. Financial Documentation
The last qualifying factor we require here at AdvancePoint Capital is documentation to outline the type of equipment you need, along with information about how the equipment you purchase will benefit your business.
Business owners commonly use profit and loss statements to illustrate how specific equipment can affect productivity levels, revenue influxes, and the overall success of your enterprise. Business owners must be prepared to show their lender how an equipment financing solution will continue to bring money into the door of their business.
Application Requirements for Equipment Financing
Navigating the world of business banking and understanding lending practices can make a significant difference when applying for equipment financing. Each type of business financing, including small business loans, has individual requirements. To potentially simplify this process and understand your monthly obligations beforehand, using a loan calculator can be quite beneficial. Generally, minimal paperwork is needed when applying for an equipment loan.
As part of the qualification process, to secure the capital your business needs efficiently, you may be asked to provide the following information to your lender:
- Business bank statements (Typically, the most recent 3 months) to demonstrate effective financial management, which is essential for potential lenders to gauge the health of your enterprise.
- Invoice or description of the equipment you intend to purchase, which helps the lender assess the loan's purpose and may also influence the leasing options such as equipment leasing as an alternative.
- You will need to fill out an application with the necessary business information and owner's personal information. This is a standard procedure in assessing borrower eligibility and ensuring that the loan terms align with your business's capability to meet repayment schedules.
- Both business and personal credit will be reviewed by the lender or funder as they delve into the eligibility requirements, taking into account your financial history and current credit status.
The nice thing about small business equipment loans is that they often come with flexible lending practices. There are never any harsh credit requirements common with other funding options. So, even if your credit score isn’t stellar, you can still get equipment financing with bad credit, which can be a lifeline for increasing the cash flow of your business. All you need is a straightforward application and the few financial statements mentioned above to apply for the loan and meet the lender's qualification requirements.
Is Equipment Financing Loan Right for Your Small Business?
As a small business owner, you may frequently find yourself juggling many financial responsibilities. Managing your working capital so that you can get through each day will require one type of business loan, while the funding for renovations or expansion will be entirely different.
The various loan products, payment terms, and lender options can add up — leaving certain business needs to fall to the wayside while you figure out what’s best for your business. Yet when it comes to buying equipment, equipment financing presents a clear avenue. It allows you the freedom to separate business loans from equipment loans, making financial management more streamlined. Furthermore, when you're buying equipment, you have the option to pursue used equipment financing, valuable for a business eyeing cost-effective second-hand acquisitions.
Business equipment funding is a unique funding product that should only be utilized if industry-specific equipment is integral to your daily business operations or if you've determined that investing in higher-quality equipment would reduce costs in the long-term. Keep in mind, when you're committed to buying equipment, often the flexibility to trial is reduced compared to leasing options.
For industries like healthcare, manufacturing, agriculture, restaurants, or those that heavily depend on expensive equipment or technology — an equipment loan offers an optimal solution. Options at the end of an equipment lease, such as the chance to renew or purchase the equipment, are not available when you buy outright.
Don’t let your equipment fall into disrepair, resulting in lost revenue and the erosion of customer trust. If your business can’t operate without its equipment, it’s time to give us a call. Fill out our online form for your free quote for an equipment loan for your small business.
What Is Equipment Lease Financing?
Equipment lease financing is where a company or individual obtains equipment by entering into a lease agreement with a leasing company. The leasing company purchases the equipment and leases it to the lessee for a specified period, typically in exchange for regular lease payments. At the end of the lease term, the lessee can usually purchase the equipment, return it, or enter into a new lease agreement. Always read your lease agreements carefully for terms and conditions.
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Equipment Leasing vs. Financing: Comparing Commercial Equipment Lending Solutions
The main difference between equipment leasing and equipment financing is the equipment’s ownership status.
Equipment leasing is the renting of equipment from a leasing company for a specific lease term, making monthly lease payments until the end of the lease term at which point you either return the equipment, renew the lease, or exercise a purchase option. In an equipment lease agreement, you do not own the equipment. Equipment loans involve borrowing funds from an equipment financing company to purchase equipment. The equipment loan is a financing agreement using the equipment you purchased as collateral to secure the loan against default. With an equipment loan, you own the equipment unless you default.
So the best way to acquire equipment for a fair market value is to either lease equipment or finance it. Let’s look at the differences between these equipment leasing vs. equipment financing options in detail.
1) Interest Rate and Payments
Here’s how an equipment lease works: you sign equipment leasing agreements with a leasing company that offers specific equipment for small businesses in your industry. This is a common practice in the construction industry, but it also happens in the restaurant industry, farming, and other sectors.
Lease agreements, otherwise known as equipment rental agreements, specify the lease term and lease payments. You have no down payment. However, you’re responsible for a monthly lease payment, which includes any interest charges (known as a factor rate) and other fees.
Financing, or a loan, means that you will have to get an equipment loan from a bank or another lender. Just like any business loan, you’ll pay a specific interest rate. With an equipment loan, you are purchasing the equipment upfront and financing the equipment over loan terms with the equipment used as collateral, until the loan is paid in full. When discussing your equipment loan terms, inquire about any prepayment penalties or eligibility for prepayment discounts to manage your financial planning efficiently.
There are still flat monthly payments, but you pay them to the bank or online lender you took out the loan with. Unlike some traditional SBA business term loans, competitive lenders may offer the advantage of no prepayment penalties, which can provide financial flexibility for your business.
Interest rates generally range from 5 to 18%, and factor rates for leases are 10%-35% depending on the piece of equipment, your credit history, and the down payment. When comparing lenders, consider additional benefits like prepayment discounts that could save your company money in the long run.
2) Overall Total Cost
A lease agreement will almost always be more affordable than equipment loans in the long run. The reason lies in the costs of ownership. With leasing companies, you rent equipment and can mark it as a business expense, but the ownership stays with the equipment lenders. Not only does this mean potential tax savings through deductions, but it also offers a form of cash savings since you're not tied up in purchasing assets.
Once you're done with your lease, you don't have to take on any maintenance costs. And depending on your lease agreement, you might be able to avoid expensive repairs during the lease term, which further contributes to operating cost savings.
Acquiring equipment through business loans is more expensive because you have to pay the entire cost of the necessary equipment plus interest, and you also have to pay to maintain it over the years. Plus, without the burden of a loan, you maintain greater savings and liquidity for your business to use in other areas.
But, there are many cases where business owners would want to hold onto the equipment even after the operating lease has ended. If that’s the case, it’s better to finance equipment rather than opting for leased equipment. At the end of the term, you'll gain ownership of the equipment and may be eligible for additional tax savings through depreciation deductions.
When you own it, you have it for a longer period and can even resell it and use the money to purchase new assets, potentially recycling your initial savings into further investments for your company.
3) Ownership of Equipment
You won’t own any equipment under a capital lease. Whether you have a finance lease for office furniture or for the construction business, this form of contract does not typically contribute to equity in the rented property.
Instead, you commit to a monthly payment to maintain the use of the equipment. When the lease term concludes, opportunities arise such as renewing on potentially more affordable terms due to depreciated value, or you simply return the equipment without further obligations.
Conversely, if you opt for a financing route and make consistent loan payments for equipment purchase, this asset becomes a tangible contribution to your company's equity. Upon full payment, you'll possess the title and have the freedom to resell, further leveraging your business's financial standing.
4) Risk of Obsoletion
Although there might be some tax incentives with getting a loan to obtain equipment, such as potential upgrades or depreciation deductions to offset costs, you risk owning equipment that may become outdated quickly. However, when you lease, the risk of obsoletion is mitigated as you might be able to switch out your equipment under the lease terms if it becomes obsolete. You can then update your lease agreement and acquire the latest equipment without the burden of selling or disposing of the old equipment.
Applying for equipment financing from AdvancePoint Capital is a straightforward and convenient way to get the funding you need, without the worry of obsolescence. Whether you’re looking to repair existing tools and equipment or invest in brand-new machines that come with advanced features and capabilities, we’ll ensure your costs are covered. Additionally, at the end of the term, you'll gain ownership of the equipment and may be eligible for tax savings through depreciation deductions.
Contact AdvancePoint Capital today or fill out our online form to receive a free quote for your small business and set back on the path to success with the latest equipment at your disposal.
