When business owners hear the term equipment financing, they usually think of construction equipment. While that is indeed included, the term encompasses so much more. In reality, there is an equipment financing option for virtually any type of small business.
Read on if you want to find out what equipment financing actually entails, whether you are eligible for it, and how you can get it.
What Is Equipment Financing?
Put simply, equipment financing is a loan you get to buy the capital equipment you need for your business. The amount of money you qualify for depends on the value of the equipment, and the loan term depends on how long you plan on using the equipment.
So, if you plan on buying sewing machines that you’ll be using in the next six years, you should get a loan with a six-year term. That way, you will neither be scrambling to pay off the debt too early nor will you be paying for the equipment after you’ve stopped using it.
Who Can Offer Equipment Financing?
Various equipment financing companies can offer you these loans. While a bank can do the same, it often has stricter rules, and not everyone can apply for a loan.
An equipment financing company, on the other hand, is a lot more lenient. It gives a fair chance to most applicants, no matter how small or big their business is. It also offers fair and affordable business loan rates.
Who Qualifies for Equipment Financing?
To be able to apply for a loan, you need to fulfill certain requirements. Firstly, you have to be in business for at least a year. Then, you need to have annual revenue of $50,000 or more. Finally, you ought to have a credit score of 650 or higher.
However, these conditions are not always set in stone. For example, if your credit score is lower than 650, there is still a way for you to apply. You simply need to provide proof of solid cash revenue for the last three to six months. That will be enough for most lenders.
It is also important to mention that loan conditions vary with individual lenders. Some might allow applications by those with a much lower credit score. Conversely, others might require a much higher score to allow you to apply. Thus, research is key when it comes to finding the best lender option.
What About Collateral?
The great thing about this type of financing is the fact that the equipment itself can serve as the collateral for the loan. That way, you don’t have to risk your personal assets or drain your liquid cash. If you are unable to return the loan, the lender will simply take away the equipment. Everything else will stay intact.
More Pros of Equipment Financing
The collateral is pretty much a part of your loan. Thus, getting this type of loan is much easier than getting an ordinary one, as we mentioned above. Additionally, equipment loans often have the lowest interest rates you can find.
Finally, equipment financing can be quite useful at tax-time. Namely, the interest you’ve paid for the loan is deductible, and you’ll also get depreciation tax benefits.
A Few Parting Words
As you have read, equipment financing is not reserved for heavy equipment only. In fact, you can get this type of financing for almost any type of small business. You will get good interest rates, save up on tax-money and, most importantly, get the equipment you need.
So, don’t waste any more time. Contact an equipment financing company today, and start working on your loan plan. We hope our guide helps you take that first step.
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