Considering Equipment Financing? Here’s What You Need to Know
Almost all small business owners must seek out financing to cover the cost of their equipment. Whether you are needing new computers, lawn and garden equipment, sewing machines or heavy manufacturing machinery, you can get everything you need with equipment financing.
Assistance for your equipment purchases can either be as a lease or loan. You can buy a company car, commercial refrigerator and more with this type of loan. This type of financing is often used when you have don’t have the funds up front to purchase new equipment. This is also a great option when you need to update your equipment or replace it often.
One type of equipment financing is a loan taken out with the intent to purchase equipment for your business. This type of loan generally does not need extra collateral. The equipment that you are purchasing is the collateral. If you default on the payments, the equipment is collected.
When you know something needs upgrading or your business needs to expand, then taking out a loan is a great option, especially when you can`t afford the expense up front. However, there are some downsides to these loans. Generally, your lender will only cover 80% – 90% of the price. This means that you will have to cover the remaining 10% to 20%.
Another one of the downfalls of this arrangement is that you are going to end up paying more in the long run. Once you pay back the interest fees, you will have paid much more than what your equipment is worth. However, when broken down into monthly payments ,it is much easier for you to purchase the equipment you need now versus paying a large sum all at once.
It is very important that you read over your loan terms for equipment financing. Each lender is different, and you need to make sure there are no hidden fees or other costs that you didn’t see coming.
Remember, these options are here to help you purchase the equipment you need. If you are not happy with the loan terms, then do not sign the contract. There are other options out there that you can consider as well. You can try equipment leasing, invoice factoring or getting a line of credit. These options are helpful for when you need to purchase something now, but can not afford it.