When it comes to your business, there are many important financial facets to consider. An often overlooked one is purchasing equipment: Depending on your industry, you may have to make extensive equipment purchases that could wind up costing you a great deal. These equipment purchases may necessitate a separate business loan that you have to repay in addition to your other financial obligations. Thankfully, though it can sound intimidating, there are many ways to take out a loan for your business equipment. Here’s an overview of how to do that.
Equipment Finance Loans
Equipment finance loans are separate loans that are explicitly designed for commercial equipment financing. As noted by the financing experts at Lantern Credit, “With business equipment financing, you can secure loans without tapping into valuable cash reserves or relying on higher interest forms of financing because the equipment acts as a form of collateral, similar to a car loan.”
This makes applying for equipment loans different than applying for another type of loan. They aren’t as hard to get, and they are often not quite as expensive as other types of working capital loans. However, that doesn’t mean that they are always easy to repay: You’ll have a compressed time period to pay them off, so obtaining the cash flow to repay the loan is a must. Additionally, it is possible that you will have to place some sort of personal guarantee on the loan. This means that you – not your business – will be responsible for the repayment of the loan. It is also very likely that you’ll have to make a down payment on the loan, so you must have at least some portion of the loan ready to be paid upfront.
How to Get an Equipment Finance Loan
Thankfully, there are many ways to get such a loan. Banks or financial institutions will often have separate business equipment financing loans ready to go. Short of that, the manufacturer of the equipment may have a separate financing component available. While this type of financing can be highly convenient, you may pay for that convenience in the form of higher interest rates, so keep that in mind when you are seeking out one of these loans.
Thankfully, because these loans aren’t quite as expensive as other loans – like a mortgage or loan for working capital – the paperwork requirements usually aren’t quite as extensive.
Qualifications for these loans will vary. Many are standard: You’ll have to have adequate cash flow to repay the loan, a high enough credit score, and a reasonable debt load. One aspect is different: You usually won’t have to put up collateral. This is because the equipment usually acts as the collateral, enabling you to skip one important step of the financing process.
Equipment financing loans are necessary parts of any business. Thankfully, they usually aren’t too complicated to obtain. Just make sure you do your research in order to find a loan that best suits your business equipment needs.