This type of financing is used when obtaining the use of machinery, vehicles, or other equipment on a lease or rental basis. This avoids the need to invest capital in equipment but still allows the business to operate effectively.
A loan is used to purchase business-related equipment such as a cement mixer, an all-in-one printer, or even a vehicle.
Equipment loans are one of the most common reasons business owners reach out for financing.
Any business that has a need for physical equipment could make use of equipment financing.
Equipment leasing tends to be best for equipment that routinely needs upgrading and an equipment loan is best for an item needed for a longer period of time while it retains its usefulness.
How Does Equipment Financing Work?
Being a business owner, it's important to understand the importance of the need to quickly and economically obtain, replace, or upgrade equipment required to perform daily operations and tasks. Equipment loans are also one of the most common reasons business owners reach out for financing. Equipment loans provide for payments made periodically that include interest and principal over a fixed term. In times of need, equipment financing may be required for a business. Also, depending on the lender, they may require security for the loan. What this means is the lender may require a lien on equipment as collateral against the debt. Once the debt is paid in full, the equipment is free of any lien.
Who Qualifies For an Equipment Loan?
Any business that has a need for physical equipment could make use of equipment financing. This can include anything from office equipment and cookware to a dump truck and vehicle lifts. The correct equipment financer also has to be located, meaning the right lender would have to be located that handles financing of equipment that the business would need. Not all institutions will handle all equipment financing that comes through their doors.
Why Would a Business Need an Equipment Loan?
There can be many reasons why a business may need an equipment loan, but it typically comes down to two factors or a combination of the two. The price and the frequency at which the item must be replaced.
With pricing, new technology can be expensive, and that upfront cost might be too much for a business to take on. With frequency, the equipment needing to be purchased has a shorter lifespan of a product. If a business is in a situation as mentioned above, equipment financing might be just the thing in need. However, there are a couple of different options and it's important to know the difference.
Equipment Loaning vs Leasing
The two common ways to finance equipment would be through an equipment loan or an equipment lease option. While both garner the same results, giving the business access to needed equipment, there are structural differences between these two options.
Equipment leasing tends to be best for equipment that routinely needs upgrading and an equipment loan is best for an item needed for a longer period of time while it retains its usefulness. Regardless of which route is used for financing equipment, review the loan agreement terms and conditions to ensure they work for your business.