Comprehensive Guides in choosing Business Equipment Loan.
Business Equipment loan can help you grow your business while keeping the cash you need for payroll, rent and marketing costs. Learn how Business Equipment loan works, what the benefits are and how to obtain the right equipment loan for your business.
What is a business equipment loan?
A business equipment loan, or equipment financing, provides businesses with the funding they need to upgrade or repair the equipment they use for daily business functions. Qualifying equipment includes appliances, vehicles and electronics, such as computers. An equipment loan agreement usually cannot be used for payroll, real estate, debt servicing or other expenses. Following Approval of your Business Equipment Loan and you receive funding, you begin making payments on the loan, which includes the total cost of the equipment plus interest over a fixed period. Once you have repaid the term loan in full, you own the equipment.
What equipment loans are used for
Here are some of the most common reasons why businesses take out an equipment loan:
- Heavy equipment. Large dump trucks, shipping rigs and the like fall under this category, and they can easily cost in excess of $100,000. Heavy equipment is necessary for several lines of work, including construction, shipping and manufacturing, and for many companies, the only way to obtain these critical pieces of equipment is through a business equipment loan.
- Restaurant equipment. Industrial kitchens are not cheap. Ovens, stoves, friers, prep tables, industrial dishwashers can all run into the thousands of dollars. Even replacing plates or glassware can be expensive when ordered on a scale necessary for a busy restaurant.
- Construction. Vehicular tools like backhoes or cranes can easily run tens of thousands of dollars. Other construction equipment, such as hand tools and electric tools, may need to be purchased in bulk, driving up costs for small companies.
- Manufacturing. Manufacturing equipment comes in all varieties. Computers for control stations and automatons for dangerous work fall under this purview. According to O’Neal Manufacturing Services, the average cost of manufacturing equipment is between $50,000 and $70,000.
- Office equipment. Equipment for an office may include a multifunction copier, computers, servers, networking equipment, desks and chairs.
Benefits of an equipment loan
According to the Equipment Leasing and Finance Association, 78% of U.S. businesses finance their equipment, regardless of company size and industry. Here are some of the reasons so many businesses choose this type of financing:
- Ownership. Once you pay off the loan in full, you own the equipment. Business equipment loans are especially helpful for larger purchases, such as appliances and furniture, that you can liquidate when you need to upgrade.
- Cash reserves. If you need money quickly, an equipment loan can allow you to direct your cash flow to other business expenses, such as payroll, rent and advertising.
- Revenue boost. If you are confident that the new piece of equipment will increase your sales (e.g., an additional oven at a bakery that enables you to produce more goods to sell), you can increase your revenue while maintaining your working capital.
- Easy approval. While some business loan types can be difficult for small businesses to get, equipment loans have built-in collateral, which means lenders are more comfortable approving small business applicants.
- No down payment. Because equipment loans typically use the equipment you purchase with it as collateral, you can often finance 100% of the equipment without a down payment.
- Competitive edge. You must maintain and update your business’s equipment if you want to excel against the competition. Equipment financing makes upgrading or replacing equipment more affordable in the near term, as it gives you the flexibility to pay over time.
- Fixed rates. Business equipment loans that have fixed rates allow you to lock in a low interest rate. This may be more cost-effective than a variable-rate loan if interest rates increase during your loan term.
- Bundled costs. Sometimes, new equipment requires professional installation and regular maintenance. An equipment loan can account for these extra costs by bundling them into your loan total.
- Tax breaks. A new equipment purchase is a business expense and can often be written off as a Section 179 deduction. This also applies to equipment that is purchased with an equipment loan. If your equipment qualifies, you can write off 100% of the purchase — up to $500,000 — on that year’s taxes, which lowers your tax liability.
- Lower soft costs. Soft costs cover fees and delivery. Depending on the lender, you may be able to get up to 25% of soft costs covered. Check with your lender to see if any soft charges are covered under your particular loan.
- Flexible payments. Does your business revenue fluctuate? Depending on the lender, you may be able to arrange a flexible payment schedule and choose whether to pay monthly, quarterly, seasonally or even annually.
Who offer equipment loans?
Lots of lenders offers Equipment Loans. They includes; banks, credit unions, online lenders and equipment vendors. All of the lenders have different terms and loan options. Choosing a financial institution as Havelet Finance Limited is your best bet for negotiating favorable payment terms and getting quick approval.
Equipment lenders AND collateral
Lenders as Havelet Finance Limited dose not require collateral for a business equipment loan. Other lenders, depending on their loan agreement, it may be possible to use the equipment you are financing as collateral. Then, if you cannot make payments on the equipment, the lender can take over ownership of it What Havelet Finance Limited required is a notarized promissory note for repayment of the loan. If you default on your loan payments and you signed a personal guarantee, you must take over the loan payments yourself or the lender will assume ownership of personal assets.
How to get Equipment loan?
As with any business loan, there are certain requirements that your business must meet to qualify. Though some requirements may vary depending on the lender, the following requirements are commonplace for securing an equipment loan:
- Credit score. A good credit score is essential for obtaining loans to expand your business. If you have a high credit score, you will receive a lower interest rate and better loan terms. Devoid of credit scores, Havelet Finance Limited is your best bet and a soft landing for business owners who have a poor credit scores but needed loan.
- Business plan. You will need to supply your lender with a detailed proposal of your company goals, your annual revenue and the number of years you have been in business. Some lenders require borrowers to have been in business a certain number of years and to meet an annual revenue threshold.
- Cash flow. The lender will need a balance sheet that helps to assess your revenue and expenses and determine whether you have enough cash flow to pay your loan. If you don’t have an accounting department, consider hiring a CPA to get your paperwork in order, which can boost your chances of getting approved in a timely manner.
- Personal finances. In addition to providing balance sheets for your business, you may need to show information regarding your personal finances.
- Personal résumé. All lenders will appreciate an updated personal résumé with your loan application. It helps you connect with the lender, provides insight into your character and supports your business plan documents.
When you should consider an equipment loan
Assuming you need equipment that is pricey enough to justify a loan, the equipment loan process is favorable for small business owners. It can be easier to demonstrate your need to an equipment loan specialist than to a bank. It also lowers the amount of work necessary on your end.
There are also potential tax advantages to an equipment loan. You might be able to deduct the interest from your taxes, and you can use the loan to lower your net income and net worth without burning through your working capital. The equipment loan may prove to be the means that allows you to get the things you need while keeping an important cash reserve and avoiding being hit hard in tax season.
If you are in need for funding for any sort of business at affordable 2% interest rate, kindly refer to the following;