When it comes to financing elements of your business, you might be tempted to take out one large loan that you will then apply to the whole kit and caboodle. However, it may be in your best interest to look into many smaller loans so that you can get the best rates for whatever you’re trying to finance.
All this to say, if you have expensive equipment that you need to use at your business, it’s a good idea to look into equipment financing.
What Is Equipment Financing?
As you may be able to guess, equipment financing is the financing of equipment. Many businesses will decide that they need to receive excess capital to purchase their expensive equipment. If they do this, they will be spreading out the cost of the equipment over the entire life of the item. This is a great way to help businesses that are just starting out to get the necessary funds they need.
Equipment financing is also a way for businesses to free up some capital that they can then spend in other places.
When you finance something, you are – essentially – saying that you will pay x amount a month for a set number of months that will equal the total cost of the item (plus any applicable interest).
Just make sure that what you are trying to finance counts as equipment. It has to be a physical item that will be used in your business to further your sales (oven in a restaurant, tire pressure machine in an automobile garage, X-ray machine in a doctor’s office, etc.).
Importance of Equipment Financing
Many businesses that require large start-up costs and expensive equipment look at the option of equipment financing as a godsend. It can be extremely beneficial for these sorts of businesses.
Additionally, not only is it helpful to curb startup costs, but financing your equipment will offer many other benefits for your business:
Pursuing equipment financing will free up other parts of your capital.
Let’s say that the machine you need for your business is $50,000. Rather than having to pay that $50,000 upfront, you can finance the equipment and enter into an agreement that you’ll pay ~$420 a month for ten years.
This means that you’ll have the extra money that you might have spent towards the machine to spend on other things.
Of course, if you will be on the hook for this money for ten years. Only take out this type of loan if you think you’ll be able to commit to a $420 a month payment (plus associated fees) for the agreed-upon time period.
Equipment financing is a flexible option for business owners.
Each time you finance equipment, you will get a new agreement that will be tailored to your specific needs. This means that you will be able to customize your repayment plan and agreement with whoever is in charge of the finance loan to work best for you and your business at the time.
Equipment financing can improve your credit score.
Equipment financing is a great way to increase your credit score! Your credit score is made up of details that look into how often you pay your bills on time, and how often you only pay the minimum versus paying the whole amount.
As such, if you utilize equipment financing, you’ll be adding proof to your credit history that you’re a responsible person when it comes to repayment. The more responsible you look on paper, the higher your credit score will end up being.