Before talking about equipment financing or equipment loan, let’s discuss how equipment financing fits into the overall financial structuring of a new or existing business. What we often see is that when a business is growing they have multiple needs, staff, working capital, other expenses and also a need to purchase equipment. More often than not equipment is needed before other expenses related to that growth are incurred. Given this business owners will move quickly to order equipment, paying deposits or even the full cost of the equipment from their pocket to get things started. Then as expenses start to come in as they try to get funding for these expenses or working capital needs. However, this is not the optimal way to use the owners’ limited resources, as equipment funding is often more readily available, and easier to secure. So it is key that business owners understand the options for equipment financing as a component of their overall financial plan.
What is an Equipment Loan?
Now, before we dive into options, let’s confirm what is considered equipment. Any tangible asset used in the operating of a business, with the exception of a building, can be considered equipment. It can be a computer, cooking oven, medical ultrasound scanner, farming or construction machine, and so on. Based on this definition, banks and other lenders offer loans to facilitate the purchase of equipment. These loans can take the form of traditional financing, or be structured as leases, where the lender purchases the equipment and leases it to the company for usually 5 to 7 years. Once the loan is paid off then the business owns the full right to the equipment.
Equipment financing interest rates
Equipment loan interest rates vary depends on the borrower’s credit score, personal and business history, business revenue, as well as the type of equipment. Established businesses with excellent financials could get as low-rate as 1% with interest rates increasing for start-ups and business owners with bad credit, who might receive rates as high as 20%.
Equipment financing pros and cons with BPF Solutions
PROS
- The most important one is you can avoid emptying your account to purchase equipment, instead taking on lower payment terms.
- Through our relationships we are able to fund equipment up to 100% of the equipment value, saving the owner the need to use cash flow for downpayments.
- Purchasing new equipment for your business is an investment that grows your revenue and productivity in the long run.
- The equipment is considered the collateral for the loan, often avoiding using business assets as security.
- A sale and leaseback option is available once the loan is repaid.
- The interest you’ve paid is deductible in your tax.
CONS
- Funding opportunity may be limited depending on the type of equipment and age.
- An appraisal of the equipment may be required.
How to Apply
The first step is ensuring you understand what is required as part of the application, and ensuring you have the documents. This often includes company financials, quotations for the equipment and the expected growth that the equipment will be used to secure. Terms for equipment loans vary depending upon the individual lender as each lender either institutional or non-institutional has their own criteria.
Equipment Financing with BPF Solutions
At BPF Solutions, we understand that your business growth opportunities can be constrained by finances. Hence, with a great network of equipment financing lenders, we provide you:
- Up to 100% financing
- Customized equipment loan based on the client’s profile
- Fixed and/or variable rates are available
Conclusion
There are many ways to finance your equipment but before you start the journey make sure you reach out to an expert who can guide you on an overall financing strategy. This will ensure that you are using your available resources in the most optimal way and not allocating to places that may limit future options.
We’ve been providing equipment financing for the last two decades and have helped many clients get funded. So, if you want to buy equipment and optimize your use of capital fill out our equipment financing form or contact us today.
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