As a business owner, you probably have to handle keeping the equipment at your office up to date. Without it, your workflow could be slowed down considerably. The right equipment is usually crucial to finishing everyday tasks.
However, buying new equipment can put a strain on your bank account, especially if you are a small business. Equipment financing may be able to help you out.
In this guide, we are going to be covering what equipment financing is, how it works, and how you can qualify for it. Let us get started.
What is Equipment Financing?
Equipment financing is a system where a business can make payments towards a piece of equipment they need. Once they finish making the payments, the business owns the equipment.
Many small businesses make use of this since equipment can be extremely costly. Making smaller payments is usually much easier than paying one lump sum.
That way, you can start using the equipment right away and your workflow is not slowed down.
When it comes to equipment financing Canada-wise, small businesses can receive tax benefits and 100% financing, which can make it easier for small businesses to get the equipment and tools that they need.
How Does Equipment Financing Work?
This is a type of loan that gets your business the equipment it needs. For example, maybe your old printer broke and you need a new one right away. You would get the printer from the financing company and make payments on it while you have access to the new printer in the meantime.
Once you have the loan paid off, you own the equipment. No one can take it away from you or charge you more for it. It is important to note that not paying back the loan can result in repossessions taking place.
Equipment financing is very different from equipment leasing. When a leasing period is over, you still don’t own the equipment, you can only continue to rent it.
However, after going through the entire financing process, you can own the equipment.
Many small businesses prefer this method. They have the potential to save money in the long run and the much-needed equipment can not be repossessed by the company.
How Do You Qualify for Equipment Financing?
Qualifying for financing instead of leasing is more difficult. Plus, all lenders have different requirements that you will need to meet to get the equipment. Your credit score will be important. The higher it is, the better your odds of being accepted.
Other than that, the lenders might ask you for your business plan. They do this because they want to be sure that financing with you is a good investment.
Some companies might require that you have been in business for a certain amount of time or have a certain annual revenue.
It can help to have a professional accountant when trying to get your loan accepted. They can assist you in planning out your finances and show the lenders all of the numbers. This also has the benefit of being reassuring to lending companies.
Overall, you just want to know your credit score and have a copy of your business plan available for the lender to see. This should include your profit and loss statement–having good numbers can greatly benefit the chances your loan is accepted.
When Would You Need Financing?
Equipment financing is perfect for businesses that need new equipment right now. If you do not have time to wait and need either an emergency replacement or upgrade, this option is very helpful.
It is also good for the times when you do not have the funds available for getting the needed equipment. If you can not pay for the equipment outright, then financing gives you the opportunity to make payments until you own it instead.
This is also an alternative to renting the equipment. If it is something you know you are going to need for years to come, you probably do not want to rent the equipment for more than it is worth. With financing, there will be an end to the debt as you make payments.
Where Do I Get a Loan?
When it comes to loans, you have many different options available for you. There are tons of lenders online, but you want to be sure that you are making the deal with a reliable company.
There are traditional ways to get financed, like through a bank. There are also online lenders who can make more agreeable deals if you have a low credit score.
Overall, nothing is more important than being certain the loan is right for you. As a business owner, we are sure that you are familiar with budgeting and working with a certain amount of finances.
What Else Should You Know?
Equipment financiers have different rates that can be affected by varying situations. For instance, the current market or location of the lender might have an impact on the cost for you.
Repayment terms can be discussed with the lender. Some allow for negotiations to find your needs, others are more strict on what you can do.
Your repayment terms could be anywhere from months to over 10 years, so be sure to talk about what you can expect.
Equipment financing is a great option for many types of business owners. If your business is in desperate need of a specific piece of equipment, you can have it in your building and running in a short amount of time.
Plus, this option allows you to avoid paying the entire cost upfront. You can make payments on it until the equipment is entirely paid for. And after that, you own it forever. This makes equipment financing very appealing.
Finally, you want to have some information ready when you decide to set up your financing plan. Many lenders want to know your credit score and business plans.
This gives them some insight into whether or not this would be a good deal for them as well.