Business equipment loans help business owners acquire equipment that would normally be too expensive to buy with cash. An equipment loan is a great way for companies that want to grow their revenues with a certain tool or piece of machinery. Most of the time, the immediate ROI from the equipment pays for the loan earlier than expected, making it an awesome financing option. When compared to an unsecured loan, an equipment loan is less of a risk for both borrower and bank.
Because every industry has it’s own type of equipment, the types of equipment loans are diverse. For example, some lenders specialize in financing only one type of equipment. In the construction industry, there are lenders that offer equipment loans only for heavy machinery. In Auto ancillary, Food Processing and agriculture, there are equipment lenders that specifically help small farmers. For nearly every type of equipment you can think of (from commercial sewing machines to computers) there’s going to be a lender that finances that specific equipment.
A business equipment loan is very similar to an auto loan, where the purchased item itself acts as collateral. Because of this, qualifying for an equipment loan is relatively easy. Nevertheless, lenders will still carefully take into account your credit score, years in business, cash flow and other factors. In the case that you default on the loan, the bank is able to repossess the equipment – just as they would with an auto loan.
► Relatively Easy to Obtain Equipment loans has the collateral built right in, which makes it less of a risk for the lender or bank. This makes it easier for you to get approved. ► Preserves Cash Flow One of the best things about equipment loans is you can often find financing with no down payment. This allows you to use your working capital for other pressing needs. ► Adds to Net Value Equipment loans can boost your net value quickly while protecting your cash flow. ► Increases Revenue If you’ve done your research right, and that piece of equipment is what you need to take your business to the next level, an equipment loan is a no-brainer. It’s going to increase your income without the big hit to your operating capital.
In looking at the comparison between an equipment loan and lease, here are the most important benefits that an equipment loan brings to the discussion:
With an equipment loan you own the equipment. If the equipment you’re financing has a long shelf life then this may be a perfect fit for you because you can keep the equipment after you’re done making payments on it. Once it’s paid off you can also use it as collateral for additional financing.
A loan gives you the right to take the depreciation on your books, which could benefit your taxes for the current year through Section 179 of the tax code (up to $500,000). We suggest you contact a tax professional for exact details of this benefit.
With an equipment loan, you generally pay equal monthly payments until the equipment is paid off. Some leases may give you a right to purchase the equipment, but you may have to make a large lump sum payment at the end of your financing term to do so.