It’s likely that you may have to finance machinery or equipment at some point as a small business owner. Knowing your alternatives is crucial, whether you’re looking to establish or expand a business and require financing for machinery or equipment.
You should be aware of the kinds of equipment that can be funded as well as the best loan options for buying equipment. We’ll talk about the several kinds of loans that are available in this post, along with the equipment that you may buy with them.
What does equipment financing mean?
Equipment financing refers to the process of obtaining a loan or lease to buy commercial equipment. Except for real estate, businesses can finance the purchase of practically anything via equipment financing. Companies can utilise equipment finance to pay for build-out expenses, office furniture and fixtures, medical equipment, production equipment, company cars, technology, and a host of other things they need to run their businesses.
Certain lenders provide special loans meant only for the financing of equipment. Additionally, you might be able to finance the purchase of equipment using a bank term loan.
Although using your personal credit for business purchases is typically not suggested since it may result in tax or liability concerns, you could be able to get the loan in specific circumstances based on your personal credit history.
What types of equipment can one utilize a loan for?
Equipment financing can be utilized to buy nearly any kind of item. The kind of machinery or equipment needed to expand your business will depend on the industry in which your firm works.
Frequently, different types of equipment financing can be used to buy different kinds of equipment including:
- Heavy equipment
- Office equipment, such as computers or copiers
- Retail items, such as stands, mannequins, and shelving
- Healthcare equipment
- Tools
- Office furniture
- Landscaping machinery
- Agricultural and farm equipment
- Small equipment
- IT equipment, such as servers or networks
For bigger applications, landscapers, for instance, may need expensive tools. It is possible to utilize trenchers, bulldozers, scrapers, and excavators. Tens of thousands of dollars can be spent on each of these machines.
Also Read: The Risks and Rewards of Using Stock Loans
Although the company might be able to get away with renting these things when needed, eventually it will need to buy them in order to improve accessibility and grow the business.
Equipment Financing Options
The two most common types of equipment financing are equipment loans and commercial term loans.
Equipment Loans
A bank or an equipment store may provide an equipment finance loan. Retailers of pricey gear frequently collaborate with lenders to expedite the acquisition process.
Equipment loans are an excellent option for companies that require capital exclusively for their machinery. Because the equipment is used as security, they are typically easier to secure than SBA or commercial term loans. Therefore, this could be a simpler method of funding if your firm is new.
Equipment lenders could occasionally demand a down payment. Normally, the down payment is only 10%, however, in certain cases, a 20% down payment may be necessary for those with riskier credit histories. The owner of the business may occasionally be asked to provide a personal guarantee. The equipment will belong to the business after the loan is repaid.
Commercial Term Loans
One option for funding equipment is to apply for a commercial term loan. It can also be utilized for other things, including building or as a cash flow cushion for the business.
Compared to equipment loans, these loans are more difficult to be approved for. Usually, you’ll need a credit score of at least 680. You could also need to fulfil additional requirements, such making a certain amount of money each year or more.
The Conclusion
Since machinery is an integral part of several businesses, equipment financing emerges as the most preferred way to secure funds for machinery or equipment purchase. Being a leading non-dilutive Venture Funding Group, Avon River Ventures offers a number of products including inventory financing, working capital financing, real estate acquisition, factoring against outstanding invoices/AR, business acquisition, IP-backed funding, equipment financing, refinancing debt, and mergers.
Avon River Ventures is your funding partner with a focus on equipment financing, whether you’re looking for farm equipment finance while keeping cash flow under control, upgrade several pieces of equipment to stay up to date with changing technology, or looking for financing options for your ongoing equipment needs.
Their diverse clientele ranges from pre-revenue privately held companies to publicly traded enterprises with a $5 Billion market cap. Backed by banks and financial institutions across the United States, Canada, Australia, and Europe, they are equipped to engage in transactions up to $125 MM. Choose Avon River Ventures as your partner in financial growth and success.
FAQs
Does equipment financing provide any tax benefits?
For information on how different kinds of equipment leases could impact your taxes, speak with your tax expert. It’s crucial to remember, though, that a lot of the “tax advantages” touted by different lenders really depend on when your accountant will write off or expense the equipment.
Do I need a collateral for equipment financing?
Yes. The security for your loan will be your equipment. Depending on the type of lender (asset-based vs credit risk, for example), there may be some variations, but all will need collateral of some kind to approve your loan.