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How Does Equipment Financing Work?


iCrowdNewswire   Sep 25, 2020  2:05 PM ET

Many small businesses depend on heavy equipment and expensive machinery. Owners are eager to quickly and conservatively purchase those machines to help ensure their companies are running at full capacity. Whether your small business needs new equipment or to repair old machines, equipment financing can help.

What Is Equipment Financing?

Applying for equipment financing is often a wise fiscal move, especially when you need to buy new equipment that can take your business to the next level. Equipment financing loans can be used to buy a wide variety of new or used business equipment—it can also be used for repairs.

Businesses can purchase heavy machinery and vehicles, and the cost will be covered by this type of loan. In exchange, the entrepreneur must secure the loan with one or several of his or her assets. Numerous providers offer equipment financing, from traditional banks to alternative lenders.

Based on the business owners’ qualifications, payment rates can vary between 6% and 9%. There’s also an additional origination fee that ranges between 1% and 3%. With this kind of financing, one can buy or borrow equipment and hard assets that enable a company’s activity. Potential examples could be company cars or other vehicles, industrial restaurant ovens, etc.

How Does It Work?

Many businesses need new equipment, but plenty of them might lack the necessary funds, in which case, equipment financing comes in handy. You must first research the market for available providers, choose one that seems to match your preferences, and contact one of the lender’s representatives.

Most lenders allow their clients to negotiate the terms of the loan to make sure they are aligned with the company’s needs. Once both parties agree to the contract’s terms, the financing company will send the money directly to the client’s bank account. Sometimes, you will have to make a down payment first.

You will have to cover periodic payment rates that are comprised of interests, and you will have to pay off the entire loan over a pre-established period. Some lenders may ask for additional collateral, like other business assets or personal guarantees. If you fail to pay off your financing, you will face the risk of asset repossession.

Equipment Financing vs. Equipment Leasing

Although they seem similar, equipment financing is different than equipment leasing. In the case of the leasing, you pay rent rates directly to the equipment’s owner. Once the leasing term expires, you must buy the machines or renew the terms of the agreement. Otherwise, you have to return the items back to their owner.

The Benefits of Equipment Financing

There are many perks that you can get together with the loan:

What Items Can You Get with Equipment Financing?

As your small business grows, you will need to either buy new machinery or replace your current equipment. The type of loan we are discussing in this article helps you buy essential assets and products that, over time, retain their value:

How to Get Equipment Financing

You need to meet certain requirements before getting this loan. Most lenders consider their borrowers’ market history. You must have been on the market for at least six months to increase your chance of receiving equipment financing.

Here are some of the most important qualifications a business owner should expect in order to get an equipment loan:

The Necessary Paperwork

There are certain documents that you will have to file when applying for an equipment loan. Some of the common documentation that you must provide includes:

Pros and Cons of Equipment Financing

This type of small business loan comes with both perks and some downsides.

Pros

Cons

Conclusion

The process of applying for an equipment loan isn’t that complicated if you follow the necessary steps. Choose a suitable lender that offers decent terms, contact one of its experts, and tell them about your company and what your future plans are. Then, you must submit any required documents for approval.

Once you’re approved, you can receive the money in a little as a day directly in your business’s bank account. Choose a lender that offers flexible financing, and that fits the current situation of your company. Getting this loan and using the money to buy top-notch machinery can really help your business grow.








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