When your business is in need of new equipment in order to be successful, you will need to consider which method of obtaining that equipment is best for you. Although there are many options for financing equipment and machinery, loans and leases are the most popular choices for business owners. The choice should be made based on your current financial situation, your expected financial situation, and what funds and collateral you currently have on hand. Every business is different and your particular situation will determine the best course to take. Let’s take a look at the basics of equipment loans and leases.
Equipment loans typically require no collateral and allow business owners to obtain machinery and equipment and start using it to generate income before the first payment is due on the loan. The income that you generate after purchasing the equipment is used to pay the loan. Because equipment loans take less time to obtain they are more appealing to small businesses who do not have cash up front to purchase what they need for success. Equipment loans are a great option for businesses who need computers, machinery and production equipment but have little to no cash in hand.
A true equipment lease will finance 100% of the value of the equipment making it so that there is little to no cost to the business. Since the equipment is used as collateral against the loan, there is no reason to consider personal or business assets or credit for qualification. When you lease equipment for your business, you will enjoy the ability to keep that equipment up to date and you will never have to find someone to purchase it when it is already outdated or obsolete. Many businesses choose to lease equipment if they will be using it heavily and expect to need to replace it often.
If you already own equipment for your company and need funding for any business financial situations, equipment refinancing may be the best option. Equipment refinancing enables businesses to capitalize on the value of owned equipment and use that funding for any aspect of daily operation including; employee wages and benefits, utility bills, and renovations. Another option for businesses who have been turned down for a traditional loan is an equipment sale leaseback. This basically means that you will sell the title of your equipment to your lender and they will rent it back to you for business use. The biggest advantage here is that you can continue using the equipment while you are renting it and it is never seized unless the loan goes into default. A hard money equipment loan uses owned equipment as collateral and is generally used to bridge a financial situation where a business is waiting for funding to be released. Hard money equipment loans tend to require payments on the interest with a larger balloon payment at the end of the loan term.
Consider the value of equipment that your business currently owns and decide whether that amount is sufficient for your needs. If you are looking for funding to purchase equipment, you may need to consider what your company can afford before applying for the loan. Alternative Funding Partners offers these and many other options for funding your business. No matter what your financial needs, equipment financing may be the answer.