How Equipment Loans Work
Do you need to upgrade improve or replace your equipment? Regardless of the size of your business you may have to get equipment loans at some point, to ensure that you can still deliver topnotch quality of products or services to your consumers.
Your equipment can serve as a lifeline to your business, especially if you have to compete with businesses offering the same products or services. But, it is not easy to get equipment loans that would perfectly match your needs. Getting the right type of loan product and lender could mean the difference between success and failure when it comes to running your business.
Remember that equipment loan is still a debt that you have to repay. That means you may have to settle for a really bad loan when you have mistakenly chosen the wrong one. And that could take years to repay.
Understanding equipment loan
Do you have a car loan? If so, then you have a basic idea on what equipment financing really is. The car serves as collateral to secure your car loan. There is no need for you to attach extra collateral. That’s how equipment loans work. If you fail to keep up with the payments, the lender will go after the collateral—the equipment itself which is the subject of the loan.
When you apply for an equipment loan for your business, you will usually get a fixed interest rate from 8% to 30%. Since it is a fixed term length, you have to make the same payments all throughout the loan term.
How long does an equipment loan last? The lender sets the loan term depending on the life expectancy of the equipment. If your equipment cannot last for more than 5 years, then the lender will make sure that the loan period is below 5 years.
Which is better: Leasing the equipment or getting an equipment loan?
Why would you pay for equipment which has a low life expectancy when you can just lease it? When making a decision as to where you have to lease or buy the equipment, it is important to consider the life expectancy of the equipment. If you will only need the equipment for two years, and you will have no use for it right after, then leasing can be a good idea. But, if the cost of the lease is almost similar to the cost of equipment, why not go for the option that makes you the owner of the equipment after you have paid off the loan?
Here are some factors to consider when you apply for equipment loans:
Credit scores. Both your personal and business credit scores matter when applying for a loan. Lenders look into the way you handle your finances personally, as well as your business expenses. How many creditors do you have as a business? What about your personal creditors? If you have bad credit scores on these two, then it may be difficult for you to get financing. But, even if your business credit score is really low, but your personal credit file shows that you are a responsible borrower, lenders may be lenient to you.
If you fail to keep up with the payments, the lender will go after the collateral—the equipment itself which is the subject of the loan.
Your credit scores show if you have been paying your loan responsibly, or if lenders are already suing you just to recover the money you borrowed. If you have high debt loads, that fact will definitely work against you when lenders qualify you for a loan. Lower credit scores also mean higher interests and less favorable loan terms.
Years of doing business
If you have been in the business for a while, lenders will not find it difficult to part with their money. But, if you are still new in the business, you can make up for it by presenting a solid business plan. Make an adequate description of your product or service and make sure that you have a detailed cash flow system.
Realistic business goals and socio-economic demographics that will show the lender how you are going to meet a business need. Your business plan should be solid enough to give the lenders a synopsis of what you do, and how you will be able to generate sufficient income, so you can repay them. Make sure that your business plan is thorough and detailed enough to give a realistic and comprehensive idea of how you position your business for success.
Bottom Line
Small businesses, with no credit or bad credit are considered as “risky” borrowers by banks and other traditional lenders. So, if you’re new in the business and you don’t have an impressive credit score, it is important to look for a lender that will extend equipment loans to small or new businesses with poor or bad credit. We offer equipment loans for small entrepreneurs who don’t have the capital to buy, replace or repair out-of-date or broken equipment.
Contact us today to get the money you need at a fast turnaround time so you can continue with your daily operations.