Everything You Need to Know About Business Equipment Loans

April 26, 2023 EC Funding

Growing your business can be difficult if you don’t have the right funding. You might’ve closed the deal you’ve been waiting for. But, you’ll need other resources like equipment to get it done.

The expense of buying equipment can drain your capital. Yet, this isn’t the only way to get the right equipment. It will be in your favor to contemplate business equipment loans.

Not sure if equipment financing is the right for your project? Don’t worry. We’ve you covered.

Read on to learn everything you need to know about equipment financing!

Business Equipment Loans: Everything You Must Know Before Financing

If you need equipment that is lower in price, you might consider using your credit line to purchase it. Before using a credit line, it’s wise to reconsider before going through with it.

An option is obtaining equipment financing. Financing equipment gives business owners the opportunity to get the equipment needed to grow their business.

You have a choice to finance or lease equipment. Choosing equipment leasing, is similar to renting equipment. Typically, monthly payments are required throughout the term of the lease.

At the end of a lease term, you’re given the option to renew or buy the equipment at its market value. If you decide to finance it, you will be purchasing the equipment. Both options are great ways to meet your equipment needs.

Equipment Leasing vs Financing: What’s the Best Option?

Both equipment financing options might sound the same to you but, they aren’t. There are more differences between them than what happens at the end of their terms.

Neither option is better than the other. Both types of equipment financing have their pros and cons. It will come down to your business needs and what you expect to get out of financing your equipment.

What Happens When You Lease Equipment?

Leasing equipment works can be compared to renting. In most cases, a down payment nor collateral is needed. Your only responsibility will be making the monthly payments.

Since they won’t ask you for any upfront fees. Most of the time, your monthly payment will be lower than what you would pay for a line of credit or business loan.

The only con about leasing is that you won’t own the equipment at the end of the term. So it might be more expensive for you than purchasing or financing the equipment.

If you lease your equipment, your company will be able to keep up with any advances in technology. At the end of your lease, you could keep the same equipment or get a more advanced model. Determine if the lease meets your business needs.

In the middle of a term, businesses will opt to trade their equipment for an updated one. This feature will allow you to scale your business easier.

Equipment leasing provides you tax incentives. You could be eligible for Section 179 deductions on your company returns. It’s recommended you talk to your accountant to learn more about your eligibility.

What Happens When You Finance Your Equipment?

Financing your equipment is similar to equipment leasing because you have a set monthly payment. But, when you get an equipment loan you’ll buy the equipment. You won’t have to renew or return it when your term ends.

Most of the time, they won’t ask you to put down collateral for this loan. Because it’s secured by the equipment you’re financing.

There is one con in receiving an equipment loan. The loan terms stay the same if your equipment becomes outdated. So you might end up paying for an equipment you won’t be using after you pay it in full.

Equipment loans also give you the benefit of being eligible for tax incentives. Financing can work for your business. You can get the equipment you need without having to use the working capital you’ve on hand. Since these loans aren’t the usual business loans, they don’t require a lot of paperwork to qualify.

How Are Equipment Loans Terms and Conditions?

Every lender has their own terms. Qualifying for these loans depends on different criteria. The lender will evaluate every case.

Many lenders require your company being in business for a minimum of 1 year. They may require you to conduct business in the US. Your company should have an annual revenue of $90,000 or $7,500 in monthly deposits.

It depends on your lender but, the funds could be available in 2 to 4 days. Equipment loans are not limited to trucks and vehicles. These loans can be used to purchase construction, manufacturing, technology, medical and restaurant equipment.

When you finance or lease your equipment, you’ve several repayment options. You can pick between monthly, seasonal, and deferred. Yes, you read that right you could defer some payments.

Some lenders allow you to defer payments during your low performing season. They should be able to explain how this options works. You should speak to your lender to get a better idea of the terms and conditions of your equipment loan.

Is Financing or Leasing Your Equipment Purchase the Right Call?

Financing or leasing your equipment purchase can be the right call. Business equipment loans are a great way to grow your business in a fast and easier way.

You should consider both options. It’s going to come down to your business needs.

Are you buying equipment that will become obsolete? Do you expect to use the equipment after your loan term ends? These are some of the questions that can point you in the right direction.

Remember to do your homework and decide what’s the best option for your business. Also, you should contact your lender to verify what documents you’ll need to apply.

Need to finance some equipment to grow your business? We can help!

Fill out our qualification form to hear more about your options.

If you have any questions on how Working Capital can help your cash flow or to learn more, please give us a call at 888-513-9937.