What is Equipment Financing and how does it work?
Let’s talk about how Equipment Financing works.
Equipment financing is the use of a loan or lease to purchase or borrow hard assets for your business.
Any tangible asset, other than property or a building, used in the operation of a business may be considered equipment.
For example, desks, computers, a pizza oven, a dental X-Ray machine, and construction equipment are all considered business equipment and can be either purchased with an equipment loan, or leased.
Because the equipment you are purchasing is considered collateral, this is a financing option that allows a small business owner to finance the purchase of equipment even if they don’t have other assets that could be used as collateral.
How Does Equipment Financing Work?
You can finance the equipment you are purchasing through the equipment dealer you are buying from, but it can pay to shop around.
This is one of the advantages of having a Custom Business Funding Plan, which you can request down below.
It gives you alternative options for getting the financing you need that will give you the most favorable terms.
With business equipment financing, because the equipment you are purchasing serves as collateral against the loan, should you run short of money for a few months and be unable to continue paying your loan, the lenders have the right to seize that collateral to cover what you owe.
The good thing about this is that you don’t have to find other assets to serve as your collateral.
Pros of Equipment Financing
- Relatively low APR
- Predictable monthly finance payments
- Helps build business credit
- Equipment serves as strong collateral
Cons of Equipment Financing
- Can require high down payment
- Requires strong credit for good terms
- Financed equipment can become outdated, but you are stuck with it at the end of your payment term
Conclusion
Always read the agreement carefully and don’t hesitate to get professional advice, especially for expensive equipment.
Due diligence can definitely pay off when it comes to any type of financing.
Get qualified for business funding today by visiting our funding platform ROK Financial here.