How to Finance Equipment for Your Business

If you have a business, whether it is a big business or merely a small one, whether you are running a hair salon or a food truck the best way to ensure your business runs smoothly and customers get maximum satisfaction is, getting the right equipment.

It’s not just about getting new one; you also need to upgrade and replace worn-out equipment from time to time. Buying new equipment is expensive and equipping both big and small businesses can cause severe financial constraints to the business cash flow, so funding equipment from the business’ pocket is not a great idea, except your business makes a huge profit.

On the bright side, new equipment will take your business to the next level, and give you a chance to improve profit, new equipment means more efficiency, and efficiency means more customers.

One of the secrets to a successful business is to have the best equipment available to you. When we talk of equipment, we are referring to virtually all hardware ranging from heavy machinery to portable POS machines. The equipment needed for your business is determined by the type of business and the business size, a manufacturing company uses completely different equipment from a service company, and such variation continually appears as the field differs.

What type of equipment can be purchased using business equipment loans?

Below are a few examples of small business needs that you can cover with small business equipment financing:

  • Forklifts, workbenches, and conveyor belts
  • Point-of-sale hardware and software
  • Office furniture – everything from desk sets to rugs and lighting
  • Software, including operating systems, CRMs, accounting programs, and more
  • Office appliances like telephones, refrigerators, coffee makers, and more
  • Food trucks, delivery vehicles, company cars, and trailers

Just as earlier stated, getting equipment is usually expensive; no matter how small or big such equipment is, it requires working capital to finance. This brings us to the question, how can I get working capital? The easiest way to get working capital is to source for external funds. This includes loans, grants, and donations, but before you source for a working capital you should:

Small Business Equipment Financing Pros and Cons

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Advantages of small business equipment financing

  • Low interest rate – An equipment loan is usually the financing option with the lowest interest rate.
  • Speedy process – With business equipment loans, you can get your hands on the funds pretty quickly and own the equipment outright.
  • Resolve cash flow issues – Once the loan is repaid, if you need cash for other business purposes you may try to sell the equipment to a lender in return for quick cash and then lease it from that lender.
  • Tax breaks and benefits – Since the equipment serves your business, the interest you’ve paid is deductible, and you’ll also enjoy a depreciation tax benefit. In addition to the above, when you own the equipment, you can take advantage ofSection 179 depreciation tax benefits.
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Disadvantages of small business equipment financing

  • If the financed equipment becomes outdated, you’ll need to sell or dispose of it.
  • High initial down payment – An equipment loan may require a high initial down payment. In addition, using business equipment loans is more expensive than purchasing the equipment up front due to the interest on the loan.
  • Depreciation– It may be better to use equipment leasing rather than financing in the event that the equipment can depreciate quickly (such as computers and software)
  • You are the owner and you are responsible for the equipment– If anything should happen to the equipment, you are responsible for all of the maintenance costs.
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How to Finance Equipment for Your Business? 

As already stated, you need working capital to finance the procurement of equipment, as much as you need to get a lender, it’s also essential that you get the right lender. If you fall for shady loans, you may end up in bad debt and ruin your business, so you need to be very careful. This article explores a variety of options for you to choose from.

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Banks Loans 

For over a century now, banks have remained a go-to place every time you need money. There are numerous options and types of loans you can get from a bank; there are small loans, huge loans. Banks also offer loans specifically for SMEs. The loans provided by banks are unlimited once you have the right paperwork and collateral.

Despite banks being the most available source of loans, it has its downsides, getting a loan from a bank takes a lot of processes and paperwork. If you need urgent funding, banks are not an option, because it takes time to process. That’s not all, banks also ask for collateral; if you don’t have matching collateral, you may not be able to access bank loans.

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Alternative Online Business Loans

If banks are not conducive enough, then you can try out other alternative lending options. Alternative loans are a bit unconventional, but it is worth giving a try.

If you want a quick loan, and you feel banks processes are too tedious for you to follow, or you don’t have collateral to stake, then using an online lending platform is a great option, there are numerous online lenders, so getting one wouldn’t be a problem.

Online lenders offer quick loans to businesses with little or no collateral at all, and they are not concerned about your credit score, with an average score of 650, online lenders are willing to offer you loans.

Although these alternative options are not for set up procuring equipment, however, since they are capital loans, you can use the cash flow to get equipment. Alternative loans are cash flow loans because they give loans based on the amount of cash flow from the business. Alternative loans don’t require collateral and are easy to access.

However, if you are not careful, alternative loans can be a death trap because they charge a high-interest rate and the repayment period is usually daily or weekly; this short period will directly affect the cash flow of your business.

Bizit has created a comparison tool that can assist you to compare and find the best small-business loans to meet your needs and goals.

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Small Business Administration (SBA)

If you stay and run your business in the United States, you stand a chance to get loans through the U.S Small Business Administration (SBA). The SBA doesn’t give out loans themselves; rather, they stand as an intermediary or guarantors to lenders so they can get loans from banks and other financial institutions.

A’s primary focus is to help small businesses, so if you have a small business, this is your opportunity to get funding for equipment. This initiative was set up in the United States to help small businesses grow. The loans you will be able to access through SBA are mostly Microloans, with the benchmark of $50,000. If you are looking for a large sum, SBA cannot offer a solution to intensive capital projects, but if you want to buy equipment like coffee makers, printers and other light capital projects, SMA loans will help out.

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Equipment Leases

Leasing equipment is another way of getting new equipment. If you can’t afford to buy new equipment, or you find it difficult accessing loans, then leasing equipment is an excellent alternative.

When you lease equipment, you will pay less compared to when you collect a loan to buy the equipment; this means you will be saving more; there will be no stress of processing loans and you don’t have to tamper with your business cash flow during payback.

The best time to lease equipment is when you are not going to be using it for a long time. Sometimes we need equipment to solve our temporary needs, buying the equipment can be an overkill, this when renting can come in handy. Let’s say you have a company that produces gifts; it makes more sense to rent equipment as Christmas approaches than buying a new one.

The best part of lending equipment is that you get the same equipment for a lesser amount and when you no longer need the equipment you can easily return it and get a new one.

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Business Credit Cards 

If you have a business credit card, you can use the line of credit to acquire equipment for your business. Access to funding with a business credit card is instant, as long as you have not spent above your credit limit. However, the business line of credit has high-interest rate, but you can save by earning cash backs.

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What Kind of Business Equipment can you finance?

In fact, there’s an equipment financing option to cover tools and resources for just about every small business industry.

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Factory and/or Construction Equipment

Running a manufacturing business requires heavy equipment, which can be expensive. The equipment that you need might include:

  • Soldering equipment and Welding
  • industrial sawhorses and Saws
  • Power tools, such as electric drills
  • Forklifts and tractors
  • Bulldozers
  • Cement mixers and spreaders
  • Pressure washing equipment
  • Ladders and scaffolding
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Retail Point-of-Sale Hardware and Software

If you are running a retail business, you can use small business equipment financing to outfit your business with the most up-to-date point-of-sale tools, including:

  • Barcode label machines
  • Contactless payment terminals
  • EMV chip readers
  • Mobile payment readers
  • New cash registers
  • Payment processing software
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Kitchen and Restaurant Equipment

If you are running a restaurant, a coffee shop or a food truck you might need to buy:

  • Bread warmers
  • Commercial ovens
  • Deep fryers
  • Dishwashing equipment
  • Food preparation tables
  • Food processors
  • Freezers
  • Fruit and vegetable slicers
  • Gas and electric grills
  • Grills
  • Pastry mixers
  • Refrigerators and freezers
  • Stand mixers

These are just a few items you may need to run your kitchen behind the scenes. On the front of your business, you might need the following equipment:

  • Beer and wine coolers
  • Cappuccino and espresso machines
  • Commercial buffet tables or salad bars
  • Fountain drink dispensers
  • Ice bins
  • Point-of-sale systems
  • Storage racks for glassware and silverware
  • Tables, chairs, booths, and stools
  • Tea and coffee makers
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Office Equipment

If you’re running and office, you’ll need some things to make the workday smoother for yourself and your employees. On your list may be things like:

  • Bookcases
  • Cubicles
  • Desks and chairs
  • Fax machines
  • Filing cabinets
  • Printers and copiers
  • Rugs or flooring
  • Sofas, chairs, and small tables
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Computer Software and Hardware

The list of software you can purchase using small business equipment financing is lengthy, and it includes:

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Vehicles and Trailers

You may need vehicles or trailers if:

  • You operate a food truck
  • Your employees are driving company-issued cars
  • You a moving truck business
  • Your business offers delivery services
  • You regularly ship freight over long distances

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How to determine if Business Equipment Loan is Right for Your Business

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Create a List and Draft a Budget

Before you take a loan to fund your business equipment, you need first to create a list of all the necessary equipment required and map out a budget to know how much the equipment costs. This gives you an idea of how much loan you need, and which repayment plan best suits your business, and as well saves you from the burden of interest that accompanies a larger and relatively unneeded loan.

Before you draw out a list of the equipment to buy, there are a couple of things you need to put into consideration, like your financial medium. Remember, loans have benchmarks, so not all loans can finance the procurement of all the required equipment. You can start by drawing a scale of preference with particular attention to specialized equipment.

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Outline the Important Ones

Some equipment are more important than others; it is your responsibility to identify what is essential and what is not. Except if you get a long-term loan from a bank or a grant, other sources of financing for your business may not be able to buy every equipment, in this case, you get only the vital equipment.

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Access the Equipment’s Durability

When creating a budget, identify the cost of each equipment and their life span. How long the equipment will last should be measured up to its value, this will protect you from paying for a loan long after the equipment is no longer functioning.

Once you have identified the equipment you need and map out your budget, the next step is to get funding. Getting funds can be tricky because some loans are not big enough to fund your project while others require a lot of procedures.

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Conclusion

Sourcing for loans from external sources is the best way of getting working capital. Using funds from your business will affect the cash flow of the business. If you need to acquire an equipment loan; you need to find out the best loan options. Every business has an option that suits it; there are loans for small businesses, and loans for big businesses, once you have gotten a loan for your business, the next step is to access the condition of the loan, if the conditions are suitable, then you can give it a try.

Thanks for reading, do reach out to us if you need further assistance.

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