What Is Equipment Financing
It’s when you use a business loan to purchase equipment with monthly payments that are more manageable than purchasing cash or leasing it. One of the most popular combinations is used forklifts for sale and heavy-duty trucks, the only machines with working load capacities high enough to make complex pieces of equipment affordable. It’s also common for businesses to purchase a rental property with an accompanying mortgage to remove some of their capital outlay.
With this type of financing, you can break down the total cost into smaller chunks that are easier on your cash flow-which means less money spent in one lump sum at any given time.
Benefits of Equipment Financing
Over the long run, equipment financing with a low monthly repayment is a sound financial decision.
It reduces your company’s up-front expenditure when buying new equipment and thus improves cash flow in the short term. It also allows for greater flexibility when choosing an appropriate business loan term regarding your company’s finances and found it impossible to borrow funds from traditional banks so they could buy necessary machinery. Much like any other investment, everything boils down to ROI (return on investment).
On this front – financing does not disappoint. Purchased wisely, factories see a faster rate of return on their investments due to the amortization period being substantially shorter than what would be achieved if they put all of that money into, say an account that provides interest.
How to Get an Equipment Financing for Your Company
Equipment financing is, in most cases, the most cost-effective form of acquiring new equipment for your company. Beyond all other benefits, equipment finance will allow you increased flexibility with your funds!
Many different factors can impact how much money you receive with an investment, including interest rates, length of time on the loan, and the difference between total acquisition costs and cash flow projections.
Right now, machines used in just about any industry require funding to be acquired. The best course of action is to contact a financial consultant or banker who can work with you to ensure that you choose the perfect business plan tailored specifically for your needs.
Types of Equipment Financing Available to You
The two main types of equipment financing available to you are Traditional and Non-traditional.
Traditional equipment financing would be something like a business loan that purchases the asset outright with no monthly payments for 3 or 4 years or a lease that starts with an upfront payment and continues month-to-month until the total cash amount is paid off.
The “non-traditional” type of equipment financing includes consignment, leasing, and renting. It still results in some form of cash outlay but can offer various advantages such as tax benefits or lower processing costs which might make sense if your time horizon is short.
Things You Need to Know Before Applying for Equipment Financing
Applying for equipment financing can seem like a difficult or stressful process. Here are some tips to help you prepare so that applying for credit does not stand in your way to start your business.
1. Make sure you have taken preliminary steps before visiting the business loan provider, such as making your list of items required and doing an inventory count.
2. Ask the right questions within each application phase to ensure interest rates and repayment schedules align with what suits your requirements 3a) Conduct personal research 3b) Discuss possible solutions with pro advisers (i.e., accountants).
3. Be aware that all types of loans have an APR, an annual percentage rate. Equipment financing is no different. Equipment loans typically have rates in the range of 10%-13%.