No matter what business you’re in, there are some tools of the trade that are just mandatory if you’re going to produce work. The cost and type of tools you need vary quite a bit though, making some businesses harder to get started without a lot of capital. As more and more industries lean on high tech solutions for administration and communication with customers, more and more companies are finding it hard to upgrade in a timely way without financial tools to help spread the cost of the investment. That’s where equipment financing comes in. With versatile options for asset purchases, financing allows any business to get the machines needed to get up and running, it’s just a matter of finding the right kind for your company.
Common Equipment Loan Requirements
When you’re applying for a loan to help cover the cost of a new equipment asset, there are a few common requirements you’ll find across lenders. Even the SBA’s wonderful small business loan packages share these common features. Traditional equipment loans have relatively low interest rates, but they are secured with the assets purchased. That gives the lender recourse in the event of a default. Like personal asset purchases, most lenders require 10-20% down before approving a loan, as well as proof of income to demonstrate your business is ready to take on the payments that come with equipment financing.
If you are looking for options that don’t require a down payment, some alternative lenders do have no money down programs with flexible loan terms. It’s worth noting that these agreements offset the additional risk that comes from having no equity in the machine at the start of the loan’s life by raising the interest on the loan, sometimes sharply. The upside is these loans can provide much shorter terms than many traditional equipment loans, so they can be useful when you need to purchase relatively inexpensive equipment with no cash up front.
Choosing the Right Loan
The more expensive the purchase, the more sense it makes to take on a loan that has a long repayment term. Not only do these loans limit your monthly overhead, the right loan structure still preserves your opportunity to pay early if your business booms. More importantly, though, it gives you the opportunity to earn a return on your down payment money much sooner than you would if you’d had to pay the entire cost of the equipment up front. For devices with shorter operating lives and lower up-front costs, equipment financing can still be a great way to spread out the cost, but you need a loan that has shorter terms to avoid paying on an obsolete asset toward the end of the loan.