Need cash for equipment or a big company purchase? If yes, equipment financing may be the solution.
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Quality equipment and other company upgrades can boost productivity, operational efficiency, and business success and growth. These renovations benefit small firms, but they are expensive and require a large initial investment. Term loans can fund an outright purchase.
When growing your business, you need the correct equipment. How can small firms get obtain equipment financing for improvements, renovations, and expansion? The cost of improving your business may strain your cash flow, but an equipment or term loan may help.
What's Equipment Financing?
Loans, leases, and lines of credit (excluding credit cards) are used by 79% of U.S. corporations to buy equipment.
Business equipment financing lets businesses buy equipment for operations and expansion. This lending can free up working capital by funding equipment purchases.
Small business owners have many alternatives for funding equipment and expansion. The right one relies on your business's needs and other considerations. Take into account:
- Approximate loan amount needed
- Business revenue
- Repayment terms
- Credit scores (personal and business)
- Projected return on investment (ROI)
Let's examine various financing options:
Term loans
Term loans are ideal for small business owners who need funds quickly to improve. The reason:
- You repay a lump payment plus interest and fees over a set period with term loans.
- They can range from one-year loans to 10-year loans.
- Term loans offer more flexibility than equipment-only loans.
Businesses with limited cash flow can invest in equipment and grow sales with term loans. Term loans can be used to expand operations, buy equipment, or support new marketing or advertising campaigns.
Using a term loan to cover major equipment investments allows the business to depreciate its equipment on its tax return. As an asset wears out, depreciation evaluates its value. The write-off applies to business equipment that generates income and has a lifespan of more than a year.
Equipment Loans
Equipment loans finance equipment, as their name implies. The equipment is collateral, and you own it after payments. Until then, the lender might repossess the equipment to recover charges if you default.
Equipment is pricey and can quickly drain a business's bank flow. By financing equipment purchases, this lending can boost a business's operating capital for other needs.
Equipment lenders are more liberal with credit ratings and financial history, making it easier to get a loan, especially since the equipment you buy is generally collateral. Traditional lenders like banks and credit unions require greater credit scores, financial history, and other documentation.
Equipment loans, like any financing, have downsides. These include usage restrictions, costly down payments, maintenance liability, and depreciation risk. Equipment loans can only be used to buy equipment, unlike other loans.
Are you a company entrepreneur looking for capital? Small business loans Idaho might be the answer to your problems if you need capital for an expansion or to purchase necessary equipment and supplies.
You may use the money from the loan to make investments in your company, and the profit you make can go toward paying back the loan and the interest on it.
Lease Equipment
Instead of buying a car, you can lease your equipment for a defined time. This means the lender owns the equipment and you pay for its use. Unlike equipment loans, equipment leases involve no down payment or collateral and may offer lower monthly payments.
If you want to buy the equipment but need more flexible payment terms or think you'll need to replace it after the lease, leasing may be a smart alternative.
However, depending on the purchase payment arrangements, leasing may cost more over time. You can also use Section 179 depreciation tax benefits on equipment and sell it if you no longer need it.
