Equipment loans: banks and alternative lenders offer their own types of equipment loans.
Equipment loans and leases provide money to small businesses for office equipment, like copy machines and computers, or things such as machinery and tools.
Instead of paying for the large purchases all at once up front, equipment loans allow business owners to make monthly payments on the items.
One benefit of equipment loans is that they are often easier to obtain than some other types of loans because the equipment you’re purchasing with the loan serves as collateral.
Another positive of equipment loans is that they don’t require a large down payment, so they preserve cash flow. In addition, they offer some tax advantages, like write-offs.
When applying for a bank loan, you’ll be required to share all of your financial details.
You’ll need to provide your lender with all the financial background on your company, future growth plans and often your personal financial information.
The more information you have to illustrate that you’ve run your business well gives banks the confidence they need to invest in you.
In addition, you will need to show exactly how you will use the requested money.
For example, if you are looking to purchase a new piece of equipment, provide quotes on the exact costs, how much capital you need to facilitate this purchase, and specifically how the new equipment will help grow your business.
Most banks and lenders will require the following:
- Personal background and financial statements
- Business financial statements
- Profit and loss statement
- Projected financial statements
- Ownership and affiliations
- Business certificate/license
- Loan application history
- Income tax returns
- Business overview and history
There are plenty of reasons why a small business owner may find it preferable to obtain an equipment loan instead of a traditional, general business loan.
They require less documentation. Traditional business loans typically require at least two or three years of profitable operation. This can make them extremely difficult for startups—and even many thriving small businesses—to get.
Lenders will want to see substantial documentation before considering your application for a general business loan.
Because equipment loans are secured by the piece of equipment that’s being financed, lenders are not nearly as concerned about your business’s history or credit rating.
You won’t need to provide as much documentation to get the equipment you need to start or grow your business.
They Enable You to Own Cutting-Edge Equipment
If a crucial piece of business equipment breaks down and needs costly repairs, an equipment loan offers a way to replace it with the latest model.
Isn’t that better than spending a lot of money to fix the old item, which may not have that many good years left?
You immediately get a new piece of equipment with all the latest bells and whistles, which can enable you to produce more products, serve customers faster and handle more business.
In addition, many equipment financing programs offer trade-in options so you can trade in the equipment for a newer model after a set time period, ensuring you’ll always own the newest equipment, which helps your business stay ahead of the competition.
They Save You Money
Equipment loans typically allow you to finance 80 to 100 percent of the cost of equipment, often with no down payment.
In addition, some equipment financing companies offer flexible repayment terms that can help you maximize cash flow.
For instance, you might be able to defer your first loan payment for 90 days or choose whether you want to make payments monthly, quarterly or annually.
The payments on equipment loans may also be tax-deductible as operating costs (be sure to check with your accountant for your specific situation).
You Get an Answer Right Away
Time is of the essence if a critical piece of equipment breaks down. Getting the financing you need right away can help you keep customers happy or profit from increasing demand or seasonal upswings.
You Increase The Value of your business
Your business immediately enjoys the value of a new asset, adding to your business’s net assets without a big cash outlay.