Buying equipment is an essential aspect of running a business. Whether you’re established or just getting started, there will come a time when acquiring equipment or upgrading existing ones will be necessary.
Many business owners shriek at the idea of capital expenditure. After all, sourcing new equipment can be extremely costly and time consuming, especially for entrepreneurs already facing financing barriers.
This is where equipment loans come to the rescue. More often than not, equipment financing can mean the difference between success and failure for an emerging company.
In the following sections, we provide more detail on the capital costs that can be covered in an equipment loan and outline the two major financing solutions available to you.
Equipment Financing Defined
Equipment financing is a type of loan that allows business owners to acquire equipment necessary for their operations.
In general, any type of equipment that generates income or increases efficiency can be financed. Buying is a good option if you expect the equipment to have a long life without requiring replacement or upgrade.
Examples of business equipment that can be financed include any good that allows you to process, manufacturer or produce your end product.
This can include:
- Production line machinery and equipment.
- Commercial vehicles.
- Specialized technology.
- Office furniture and equipment.
- Lab equipment
If it serves a business function, it can be obtained via a business loan.
Equipment Financing for Small Business
In general, traditional lenders can finance up to 80% (sometimes more) of the total purchase price of business equipment. A down payment is usually required to make the purchase, and the collateral for the loan is the equipment that you purchased with your loan.
There are many benefits to obtaining equipment financing. If you’re looking to replace old equipment, update existing processes or grow your operations, equipment financing can help you achieve your goals quicker and more efficiently.
In general, business owners require strong credit to obtain an equipment loan. After all, if you’re about to invest thousands (and in some cases, hundreds of thousands) into equipment, you and your business will need to be in good standing.
Unfortunately, many small business owners haven’t been in the game long enough to establish the credit score needed to qualify for large equipment loans.
That’s where Red Door Capital Group comes into play. RDC is an expert in equipment financing. Whether you’re looking to source new equipment for new contracts or replace existing machines that outlived their use, now is the time to consider an equipment purchase. We work with alternative lenders to help maximize your equipment purchase.
Learn more about our equipment financing here.
Leasing is another option that can help you achieve the same end results. Depending on your business, leasing equipment may be sufficient for your purposes.
Unlike equipment loans, leasing does not require a down payment. If you’re an entrepreneur or start-up, this option is attractive because of the immediate capital costs it can save you.
Leasing allows you to finance up to the full amount of the cost of the goods you are sourcing, plus a significant portion of the so-called “soft costs.” These include things like taxes, labor and delivery surcharges.
One of the biggest benefits of leasing is the ease in which you can replace equipment that’s no longer useful. However, unlike an equipment loan, a lease does not give you ownership of the equipment from the start of the term. Depending on the nature of the lease, you have the option of assuming ownership at the end of the term.
If you work in a service-oriented industry where owning capital equipment isn’t necessary, leasing might be a good option.
Even when it comes to leasing, Red Door Capital goes beyond traditional lenders. To learn more, read: Are Traditional Loans Hurting Your Non-Traditional Lending Needs?
When it comes to equipment, every business is unique. But what unites them all is the power of technology. Regardless of your business offering, automation can help you save time and money. Learn more about automating your back-end operations in the following article: Ten Ways to Automate Your Small Business for Maximum Efficiency.
Benefits of Equipment Financing
Financing your equipment needs can help you expand the size and scale of your business while ensuring more money is left in your pocket.
Other potential benefits include:
- Fast approval: a loan application for equipment financing will be approved (or denied) rather quickly.
- Tax deductible: Your equipment loan may be eligible as an “operating expense” for tax purposes. Make sure to check with your accountant or tax attorney!
- Improved cash flow: Huge sums of money that would have been diverted to capital expenses can now be used for cash flow and other essential day-to-day functions.
- Scalability: Equipment can help you streamline your service and improve your efficiency. This will greatly enhance your ability to scale up your operations to meet new demand.
Let Red Door Capital Help You Finance Your Business Equipment
Red Door Capital helps business owners determine if buying equipment is right for them. We work with top lenders from around the country to ensure you get the best terms for your loans. This includes:
- Comprehensive financing
- Flexible repayment terms that protect cash flow
- Specialty loans for commercial and service industries
- Competitive rates
- Low origination fees
- Loans secured by the business equipment finances
- Limited personal risks
Your ability to secure a competitive rate on all your business loans is more critical now than at any time since the financial crisis. To learn more about business financing in today’s environment, read: Interest Rates Are Going Up: Is Your Business Prepared?
Are you an entrepreneur who’s not quire ready for equipment financing? Perhaps you’re just getting started or still deciding on your ultimate direction. If this is the case, the following article might be for you: The Most Common Financial Barriers Facing Entrepreneurs.
Are you ready to explore your equipment financing options? Contact us today for a free consultation!
Bank of America. Equipment Financing.
Kabbage.com (November 25, 2014). How to Get Equipment Loans.