A Brief Overview On How To Finance Business Equipment

If you own a small business, you must’ve been dealing with business equipment before. Be it upgrading or purchasing, business equipment is one of many important elements of your business.

However, all of us would agree that purchasing business equipment can put substantial strain on our cash flow. For those reasons, equipment financing can be a good alternative. So, here are the steps on how to finance business equipment.

What is equipment financing?

As the name suggests, equipment financing refers to a loan or lease that is used to purchase business equipment.

What refers to equipment is any tangible assets that are used to support a business operation. As an example, a translation service requires tangible assets or equipment in the forms of computers, projectors, etc.

There are two reasons why equipment financing is a good option for businesses. First, for startups, equipment financing may be the most realistic way to get the business going. Second, it requires a lot of planning to get the best deal on securing the best financial terms.

Finance Business Equipment

How to finance business equipment?

Now that you know the definition, you may wonder, how can we finance business equipment? There are two primary options for equipment financing, loan, and lease. Here are the full breakdowns for each financing method.

Loan

When you purchase business equipment using a loan, the purchased equipment will serve as collateral for the loan.

Due to the substantial amount of collateral, lenders may be willing to provide loans up to 100% of the equipment’s value. However, you may realistically expect around 80% of the total equipment’s value.  

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The interest rate for this type of loan may vary from 5% to 30%. It all depends on several factors, such as credit rating, how long the business has been operating, and how well the purchased equipment holds its value. 

Lease

Leasing business equipment can be a good option if you, as the business owner, are not eligible for the loan or unable to provide the necessary amount of down payment.

On top of that, leasing equipment is a cheaper option than a loan. This is because of the non-existent requirement to pay any down payment and interest. 

Leasing business equipment can also be a good option if your acquired equipment needs to be constantly replaced, such as vehicles or computers. 

So, those are the definition and the different methods of equipment financing. Obtaining equipment via a loan is a good option if you’re planning to own valuable assets. However, if you’re not eligible for a loan, leasing can be a good option.

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