Understanding the Pros and Cons of Equipment Financing
Many business operations require expensive machinery. Without the proper tools, they might as well be closed. For various reasons, ventures sometimes lack the funds to purchase these pieces. Equipment financing exists to help individuals acquire these items so they may continue functioning. Like other loan styles, such agreements have varying benefits and drawbacks. Understanding what they are can help borrowers decide whether choosing one remains the right decision.
One of the best reasons for taking these loans is that they are fast. Small Business Administration and bank loans often take weeks or even months to process. As long as there are no unexpected snags, equipment funds usually appear in bank accounts in as little as a few days.
Also, there is no need to put up additional collateral. Under these arrangements, the equipment itself secures the loan. There is even the possibility of working out an agreement that dispenses with the need for a personal guarantee.
Such loans make the application process a breeze. In comparison to traditional lenders, the paperwork is cake. Equipment loan providers have less interest in the particulars of a business. Therefore, they require less documentation than their big bank counterparts.
Along the same lines, there are much better odds of qualifying. Lenders are more accepting of entrepreneurs that have bad credit or are building their first startups. Further, lenders report customer payments to credit bureaus. Because of this, a good track record could amplify a credit score, eventually making it easier to qualify for other types of loans sometime down the line.
Arguably the most attractive advantage is that these deals often offer favorable interest rates. Although they vary, they generally lean on the affordable side, even going as low as 4%. Further savings may be possible with a business tax deduction.
While not as extensive as the benefits, there are drawbacks to equipment financing loans. Machinery could outlive its usefulness ahead of fulfilling the terms of a loan. Also, borrowers do not own the tools until they’ve repaid the loan. A down payment between 10% and 25% of the gear’s sticker price may be necessary. Finally, lenders are sticklers regarding how their funds get used. Borrowers may only purchase particular apparatuses that meet specific operational needs.
Equipment financing assists ventures in paying for gear that keeps doors open. These loans are often beneficial, yet the negatives deserve consideration. Only business owners with certainty they are making the right move should sign an agreement.