Understanding Equipment Financing Rates

Understanding Equipment Financing Rates

Whether you’re looking to expand your business’ capacity or start a venture with new machines, you will want to do so with the least effect on your capital. Equipment financing is a godsend for many small to medium business owners who have just enough funds in their reserves to operate. By taking out a loan or a lease on high-value machines, entrepreneurs can confidently grow their capacities without worrying so much about costs.

One of the earliest steps to ensuring that you have the right equipment financing plan to support you is understanding how this type of agreement works. This guide discusses equipment financing rates and the factors that influence them.

5 Key Factors That Affect Equipment Financing Rates

Equipment financing rates are influenced by several factors, including the equipment itself, the person or entity taking out a loan or lease, the lender, and current market conditions. Here are some of the main considerations that equipment financing providers look into when deciding whether or not to approve an application and how much to release.

1. Borrower’s personal and business credit score

The higher your credit score, the greater the chance for an approval on your requested loan amount. It also means that your monthly interest rates could be lower. Having a positive credit history proves that you are able to meet your financial commitments on time and can manage credit responsibly. If you have little to show as proof, lenders might charge higher interest rates to cover the risk.

2. Type of industry and time in business

Older businesses will likely be charged lower monthly interest rates on an equipment financing loan compared to a one-year-old company. This is because established entities are generally seen as more stable and trustworthy. If you’re starting a new business, you can still qualify for equipment financing, though be prepared to pay a slightly higher fee. Alternatively, you can bring your monthly costs down by putting up collateral on your loan as a form of security.

3. Collateral being financed

The type of collateral you place against your loan also matters. In an equipment financing agreement, this will be the machine that you will purchase from the loan. The higher its value is, the lower your monthly interest payments could be.

4. Amount of financing requested

How much are you borrowing? The amount of financing you request matters to determine your monthly repayment fees. The rest of the mentioned factors considered, a high equipment financing amount would mean a higher interest rate because this is computed as a percentage of your principal total.

Alternatively, because you’re essentially putting a high-value collateral against your loan, your interest rates could go down, as well. In this case, it’s best to discuss options with your chosen equipment financing provider.

5. Bank statements, business tax returns, and personal and business financial statements

All these are documents that show proof of your capacity to earn money to pay off your loan. Similar to your credit history, income statements establish your credit worthiness. The more documentation you can provide, the higher your chances for approval and the lower your repayment fees would be.

Would two companies trying to finance the same equipment be charged differently?

Yes, they would, and charges will be based on the equipment financing rate factors mentioned above. With that said, two customers financing a $75,000 excavator might have very different monthly payments. If you’re working with an equipment financing agency that’s partnered with many lenders, these considerations will enable them to find the best possible terms for your specific case.

Scale Your Business With Charter Capital

When you are ready to start or grow your business, place your investment in good hands by partnering with a trusted equipment financing provider with a proven track record of helping small to medium businesses succeed. Charter Capital offers financing and leasing assistance by connecting you with established lenders that can provide the fairest plans at the most affordable rates. The best thing about working with Charter Capital is that you only pay the fees when you complete your lease or loan. Contact us today to learn more about our equipment financing programs.