For many small businesses, the overhead cost of the start-up equipment is immense. To provide their goods and services, they need access to this equipment, but can’t afford it on their own.
Equipment financing is one way businesses can afford to purchase the equipment they require. Essentially, the equipment is given to the business by getting a loan that uses the equipment they are buying as collateral on the loan itself.
When can you use Equipment Financing?
The primary use of equipment financing is when you have to purchase equipment essential to the operation of the business. This includes expensive machinery, office furniture, computers, and IT infrastructure.
Almost every type of business can find a use for equipment financing. For example, restaurants require kitchen appliances; hair salons require station tools; and construction companies require heavy machinery. In addition, office-based companies usually require PCs and other devices, and office furniture.
Recently, there has been a rise in non-bank lenders providing these necessary finances. There has been a lot of innovation in the platforms and ease of application to get such support, which help in finding the best deals for the equipment they need.
We’re one company providing such support, OnVision Capital®. You can work through a free consultation to determine whether our equipment financing solutions are right for your business.
How does Equipment Financing Work?
Usually, lenders will only provide enough funding to cover 80-90% of the equipment cost and ask that you cover the remaining 10-20%. This is not dissimilar to a down payment on a house, where the lender is trying to gauge whether you are committed to purchasing the equipment and taking on the risk.
The lender will also take the equipment as collateral for the loan, meaning they can provide better interest rates, but you lose all the equipment if you don’t pay back the loan.
What are the Downsides?
Borrowing money always comes with interest. If you can afford to buy the equipment outright, you wouldn’t have to pay any interest on your loans. There’s also no chance of losing the equipment if you can’t pay off the loan.
Interest rates are typically between 6 and 9%, but other fees can be included. The usual term of the loan is between two and seven years.
Equipment financing is usually faster than most other types of business loans, and so it can help get the business off the ground quickly.
