As a small business owner, you understand the importance of being able to quickly and economically obtain equipment to carry out your daily tasks. Purchasing equipment outright can strain cash flow. However, equipment financing is a great way to keep your business running at its best or expand to meet demand.
In this blog, we’ll look at how equipment financing works, how to qualify, and the advantages and disadvantages of using this type of funding.
How Does Equipment Financing Work?
Equipment financing is a type of loan used to acquire the equipment needed to keep your business running smoothly. Payment terms are set up over a specified period and include principal and interest.
The lender is likely to require a lien to be put on the equipment, similar to the way an auto loan works. Once the loan is paid, you own the equipment. In some cases, the lender may impose a lien on some of your other assets or require a personal guarantee. If you fail to repay the loan, the lender may repossess your business assets and, if you gave a personal guarantee, your assets.
How to Qualify for Equipment Financing
Lenders vary in their requirements to obtain equipment financing. However, there are some general qualifications that lenders consider:
• Personal and business credit scores
• Business plan including a detailed proposal for future growth
• Profit and loss statement
• Balance sheet
• Cash flow statement
Lenders are also likely to be interested in your finances. Therefore, you may need to include personal documents, such as tax returns, a list of personal debts, bank statements, etc.
Advantages and Disadvantages of Equipment Financing
There are a few different factors that you will need to keep in mind if you plan to obtain equipment financing for your business. Those are outlined below:
Advantages of Equipment Financing
• Helps build business credit
• Can be affordable
• Allows you to obtain equipment needed to grow your business
Disadvantages of Equipment Financing
• More expensive than buying equipment outright
• Payments can hinder cash flow until the loan is paid off
• Can damage credit or cause you to go out of business if you are unable to make payments
There are several options available for getting equipment financing. If you are interested in exploring your options, contact Triport Lending today to learn more.