Answering Common Questions About Equipment Financing
No matter what type of business you own, you need the proper equipment in order for your company to function properly. This equipment can be expensive, particularly for small or startup businesses. Thankfully, many lenders offer equipment financing for company owners. Here are answers to some common questions about this practice.
What Types of Equipment Qualify for Financing?
You can finance any equipment that you need to operate your company. When you think of equipment finance, your mind probably goes to heavy machinery on farms and construction sites. Indeed, some of the most common purchases made with financing are large items such as servers, vehicles and restaurant appliances.
However, you can also use financing to pay for basic office equipment, including computers and furniture. You may also finance specific tools that your business requires. If you own a hair salon, for instance, you can finance everything from colorants to scissors.
Can You Use Financing To Upgrade Equipment?
Over time, the equipment you originally purchased for your business will wear down or become out-of-date. That is why many lenders also let business owners borrow money for equipment upgrades.
While banks do not lend as much money to small businesses as they did in the past, there are plenty of other companies you can use to finance your upgrades. These non-bank lenders use innovations to simplify the equipment financing process.
What Are the Downsides of Financing?
If your business is struggling, you likely cannot afford to purchase equipment outright. Financing essential equipment should help your company survive as you attempt to find more customers.
Still, in the long run, financing is more expensive than simply buying a piece of equipment is. That is because, besides paying back your loan, you will also have to give your lender fees and interest. The arrangement fees should be approximately four percent, and the interest rates are usually between six and nine percent.
What Stipulations Are Required?
Lenders will typically ask for certain stipulations before funding your equipment purchase. Lenders will only agree to pay 80 to 90 percent of the cost. You will thus be responsible for the remaining 10 to 20 percent. You may also have to agree to let the lender collect the equipment as collateral if you fail to pay back the loan.
Equipment financing is a great way to pay for company essentials. You do not even have to go to the bank to get the funding. While financing can be expensive, it may be necessary to keep your business afloat.