How to Decide Which Equipment Financing Companies to Use
78% of United States businesses have borrowed from equipment financing companies. Businesses across all industries opt to finance for various reasons, such as saving cash and keeping up to date on the latest technologies.
There are many strategic benefits of equipment financing, but it’s crucial to choose the right lender. Are you thinking about financing equipment for your business?
Keep reading to learn about equipment financing and how to decide which equipment financing companies to use.
What is Equipment Financing?
Equipment financing refers to a loan that’s used to purchase new or used equipment for your business. Through equipment financing, you can finance up to 100% of your company’s cost of equipment.
There are many options, which is why it’s crucial to compare equipment loan options to find a cost-effective way to finance your purchase. Borrowers make periodic payments, including interest and principal payments over a fixed term.
How big of a loan you qualify for depends on the value of the equipment you’re purchasing. The equipment serves as collateral for the loan, too. If you fail to repay the loan, the lender can seize the equipment.
Equipment financing is a type of asset-based lending because the equipment is the collateral which secures the loan. Traditional banks offer lower interest rates and reasonable terms. Their credit standards are strict, though.
Online lenders can potentially offer some great options. If your finances aren’t in great shape or you need to purchase your equipment quickly, online lenders are the way to go.
The size of your loan is determined by the price of the equipment you’re purchasing. The loan term, however, matches how long you expect to use your equipment.
For example, if you’re buying a tractor you expect to use for 3 years, you’ll get a loan with a 3-year term. While a shorter period will require bigger payments, a longer term could mean you’re paying for equipment after you’re finished using it.
What About Equipment Leasing?
Equipment financing is significantly different than equipment leasing. When you lease equipment, you pay the owner periodic rent for using the equipment. The lease will dictate your agreed-upon terms and period of time.
When the leasing term is up, the equipment gets returned to the owner. However, you could create and agree on renewal terms or a buyout if you want to keep using the equipment.
The requirements for leasing aren’t as stringent as those for buying. However, much like paying rent on a house, many business owners would rather buy so they eventually have outright ownership of the equipment.
How to Choose the Right Equipment Financing Companies to Work With
Perhaps you’re a restaurant owner, a farmer, in the construction industry, or own a trucking company. Either way, there are some key factors to consider before you choose an equipment lender.
It’s important to think about both your immediate and long-term needs and what you can afford. Let’s take a look at essential things to consider when choosing your equipment financing company.
Look at Their Experience
Experience is a vital factor to consider before you borrow money from a particular lender. Equipment lenders with limited experience don’t always have the resources or expertise you might need to finance your project.
If your livelihood depends on your business, it’s best to go with a financially sound company. You want to work with a lender who has a lot of experience with different financial situations.
They Should Be Convenient
Convenience is another key factor to consider while searching for an equipment financing company. Even though most companies can offer similar rates to one another, only a few offer outstanding service and dedication that every business owner wants.
It’s important to work with a company that makes things easier for you, not more difficult. They should be able to walk you through the lending process and address all of your questions promptly. Applications shouldn’t be too lengthy, and you should be able to get a credit decision within a day or so.
Equipment Financing Companies Should Specialize in the Type of Equipment You Need
Is it better for you to choose an equipment financing company that specializes in different industries? If you’re a restaurant owner and you’re only ever going to need restaurant equipment, it makes sense to borrow from a company that specializes in restaurant equipment.
However, say you’re a construction company owner with a big building project ahead. There’s a possibility that, in addition to construction equipment, you’ll need additional equipment in the future. Perhaps you’ll need computer hardware, furniture, or kitchen equipment.
In that case, it makes sense to finance through a company that doesn’t just finance heavy equipment, but things like office furniture, computer hardware, and commercial vehicles, too.
Think about the type of project you have and choose a company that can accommodate all current and potential needs. You’ll save a lot of time and headache if you can finance all of your borrowing needs through one equipment finance company.
Pay Attention to Reputation
Before you start paying for equipment, make sure you choose a financing resource with reviews that speak for themselves. You should be able to read customer testimonials and view other clients they’ve loaned to.
Reading testimonials will help you get a feel for how a financing company communicates and provides customer service to their borrowers. Be careful to do your own research, ask around, and read reviews on other sites, too.
Read Equipment Financing Proposals Carefully
There are some less reputable lenders out there that only disclose a monthly payment or rate in their loan proposal.
Make sure you understand where all your money is going and have all the required information before you sign an agreement. Here are some questions you should be able to answer by looking at a loan proposal:
- Is a deposit required? If so, does it get applied to the cost of the equipment or is it a financing charge?
- Are there any hidden costs not included in the loan proposal?
- Are there any payments due before the equipment is to be used?
- How is the equipment purchase price determined at the end of the term?
- Could the interest rate fluctuate during the length of term?
- Are there any penalties for paying off the equipment loan early?
Ask About Additional Services
Many equipment financing companies provide capital without any additional services. While there’s nothing wrong with that, it’s important to think about your needs. Some lenders offer project management services, technology trade-in programs, and apps for equipment tracking.
Many companies offer online payments with the option to save your information online securely. Equipment financing companies should discuss with you your needs, budget, and the equipment acquisition process. You should receive a customized loan agreement which specifies everything you’ve agreed to.
Look before you leap, though. Make sure you feel confident that your lender has your long-term interests in mind and will continue to communicate with you in a professional and timely manner.
If you’re leasing rather than financing, choose a lender that understands your potential equipment upgrade needs, too.
Benefits of Using Equipment Financing Companies
There’s a reason why 8 out of 10 businesses finance their equipment. With so many businesses doing it, let’s visit some of the many benefits of equipment financing. With 0% down, you can finance up to 100% of your equipment.
You can save your cash for other parts of the business, such as improvements, expansion, or marketing. You can customize your borrowing terms to coincide with seasonal income changes and cash flow. Plus, you’ll accelerate your cash flow by making smaller payments while your new equipment generates income.
When you finance or lease equipment for your business, you can bundle in additional services. Many borrowers allow you to add maintenance, installation, and equipment insurance to the deal. To avoid the risk of higher interest rates in the future, be sure to ask your lender about locking in your rates.
Choose the Best Lender for Your Equipment Financing
Many companies decide to finance their equipment because they want to save their limited cash to use on other aspects of the business. They also want access to technologically-advanced equipment without having to put down a massive down payment.
If you’re looking for a lender for your equipment financing needs, be sure to choose the right one. From experience and reputation to communication and reliability, make sure you sign with a lender with a track record and professionalism you can count on.
If you think you might need additional equipment down the road, go with a bigger lender that has the funds and the experience to finance different types of equipment. If you’re interested in additional services, be sure to find out what your lender offers and if anything can be bundled together.
Are you ready to apply for funding to get your project up and running? Apply now through our 90-second application!