Regardless of the industry that a business competes in, growing and staying competitive will almost always require having new equipment used to help produce or sell their products. While equipment is very important, it can be quite expensive. Luckily, there are many different equipment finance options available from banks and other programs that could help you to get the equipment that you need.
One option for equipment finance would be to take out a loan from a bank. Banks offer a wide range of loan options to businesses of all sizes. One option would be to take out a line of credit and use the proceeds to purchase equipment. Banks will almost always provide lines of credit to successful businesses. These lines of credit are typically secured by accounts receivables or some other collateral, and the proceeds could be used to buy any form of equipment necessary. You may also be able to receive an equipment term loan in which they will give you the money necessary to buy the equipment and you can then repay the loan over time.
Another option for equipment finance would be to look into government loan programs. The government has a wide range of loan programs available to small businesses that are looking to expand. These loan programs do include loans capital improvements, which can include equipment purchases. These loans are often ideal for a business because the interest rates are very low and could have a much longer repayment term, which would then reduce the overall payment.
The third option would be to seek an equity investor. Equity investors are individuals or entities that will provide you with the money necessary to purchase the equipment and usually provide many options regarding equipment finance. However, in return, they will retain a small percentage ownership of your company and will receive dividends going forward.
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The businesses that operate in many industries rely heavily on specialty machinery and equipment. This equipment is often quite expensive. The more successful these small businesses are, the more they have to acquire new equipment. For many of the companies, the question of equipment finance comes down to getting financing at a bank or leasing the equipment.
Debt and Ownership of Equipment Finance
Assuming a small company can find a bank to lend enough for the equipment, the company has to consider several factors. Buying expensive equipment can put a strain on the cash flow of a small business. There is usually a large down payment to be made. The payments on a loan will represent a monthly cash amount that includes paying for the equipment and making interest payments. If the company owns the equipment through a loan, it immediately takes depreciation on the value of the purchased machinery. Additionally, the debt to the bank is shown on the company’s balance sheet. This may keep the company from qualifying for loans it needs for other purposes. As a final issue, a small business will normally keep purchased equipment for a long period of time. That means that maintenance can become a significant cost.
Leasing of Equipment
Many small businesses find leasing to be a preferred method of acquiring the equipment they need. There are specialty leasing companies, both private and owned by manufacturers of equipment. These leasing companies provide financing when a loan is not available. Even if a loan is possible, the choice of leasing may be preferable. Companies can avoid large down payments. Their monthly payments are often lower, and lease payments can usually be totally written off. There are other advantages depending on the specific equipment and situation.
Many small businesses choose leasing for their equipment finance method.
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The Role of Specialized Equipment
Many businesses exist today solely because the specialized equipment they use is so complex and expensive. This specialty equipment performs many vital functions. There are a wide range of applications, including tree trimmers, screen printing, construction lifts and industrial cranes. The list is almost endless. The companies that create businesses around this equipment bear the costs of acquisition, training on and maintenance of the equipment. Their customers need the use of the machines once or periodically. That occasional use does not justify the purchase or ownership of such equipment, which is why equipment finance is important.
Equipment Finance for Small Businesses
The very advantage of the machinery that creates the business is also one of the disadvantages. Small businesses sometimes struggle with finding adequate equipment finance options to purchase enough equipment to grow their businesses. Oftentimes, banks are hesitant to lend on specialized machinery, unless a company is well-established with a long operating history. Some companies get started on the personal credit of the owners. Even if they are successful, they may face hurdles in finding sources to fund additional equipment. For some businesses, the SBA has loan guarantees that might make a difference.
The Equipment Lease as an Option
Many businesses find equipment leasing to be a viable option instead of equipment financing. Manufacturers of very expensive equipment will often fund a private leasing company to help sell their products. Other private leasing companies specialize in certain industries, such as industrial cranes and lifts. These companies buy and sell used and leased equipment and take a lot of risk out of offering leases to small companies. There are also certain tax advantages to equipment leasing. These tax advantages can attract investment from investors to fund leasing companies.
Many small companies are able to grow their business only because they have been able to establish a relationship with a leasing company. When the banks say no, a leasing company might be a good source for a yes.