The Small Business Owner's Guide To Equipment Financing

The Small Business Owner’s Guide To Equipment Financing

What is one tip you’d give to small business owners who want to finance commercial equipment?


To help you with guidance on equipment financing as a small business owner, we asked business owners and entrepreneurs this question for their best insights. From choosing rent-to-own for long term leases to partnering lenders who have strong relationships with OEMs, there are several tips that may help you make an informed decision on financing commercial equipment for your small business.


Here are 10 equipment financing tips for small business owners:

  • Choose Rent-to-Own for Long Term Leases
  • Look into Minimum Operational and Revenue Requirements
  • Make Sure You Have a Good Credit Score
  • Explore Available Options
  • Consider Residual Leases and Sale-and-Leasebacks
  • Get Pre-Approved for Financing First
  • Consider Equipment Leasing Instead of Buying
  • Lease Your Equipment in Bulk
  • Check Small Business Administration First
  • Partner Lenders Who Have Strong Relationships With OEMs

 

The Small Business Owner's Guide To Equipment Financing

 

Choose Rent-to-Own for Long Term Leases

If you’ll be using this commercial equipment long-term, search for options that are rent-to-own. In a rent-to-own contract, lease payments will also count as purchasing payments, leading to full ownership of the equipment. Upon acquiring full ownership of the equipment, you can either continue to use it in daily operations or sell it. Financing rent-to-own equipment can also be used as a tax write-off, assisting your sole proprietorship, LLC, S Corp, or partnership in reaching its 20% deductible income limit.

David Aylor, David Aylor Law Offices

 

Look into Minimum Operational and Revenue Requirements

When choosing a lender for your equipment financing loan, beware of their time requirements. Some lenders may require your business to earn a minimum annual revenue to qualify, while others may want your business operations to meet a minimum limit. That means that startups with virtually no business history will likely have fewer options than those with established market success. Though many new businesses can secure an equipment loan, leasing may be a less risky way to enter the market, test your product or service, and give you the revenue to secure future financing options if you decide to buy equipment later.

James Diel, Textel

 

Make Sure You Have a Good Credit Score

Do everything you can to make sure you have an excellent credit score. Lenders will look at your credit score when deciding how trustworthy you are. Your credit score will significantly impact the cost of financing commercial equipment in the long run in terms of your interest rate. Starting a business means taking on many risks and liability, but having a good credit score will set you up for success, especially if you need to finance commercial equipment.

Sumeer Kaur, Lashkaraa

 

Explore Available Options

Before committing yourself to a loan from a traditional lender for your commercial equipment, it may be worthwhile investigating some alternative options. Countless investors are looking for promising businesses with the potential to grow who may be interested. For a small percentage of your returns, you may find someone prepared to cover either all or a major part of your costs.

Don’t neglect to ask family or close friends if they could help with the initial costs. The benefit to this is that they may ask only that you repay their outlay, saving you the interest charged by a professional lender. Another option may be to seek crowd-funding. Again, for a small return, you may be able to finance your equipment in full and avoid those costly bank charges. Take some time to explore these options and in the long run, you may find that vital equipment needn’t be a millstone around your neck.

Morgan Taylor, Sourcery

 

Consider Residual Leases and Sale-and-Leasebacks

A residual lease may be your best financing option for commercial equipment you’ll need to upgrade regularly. The lease is designed to match your payments to the revenue stream that the equipment creates so that you aren’t stuck with the cash flow issues an outright purchase or aggressive loan repayment plan can create. Instead, you can reserve your cash flow, even with frequent equipment upgrades. A sale-and-leaseback can work if you already own some equipment and need to invest in more. By selling the equipment you own to a lender and leasing it back from them over time, you free up working capital to invest in new commercial equipment without losing the items you still need.

Anthony Martin, Choice Mutual

 

Get Pre-Approved for Financing First

The best tip for small business owners who want to finance commercial equipment is to get pre-approved for financing before shopping for the equipment. This will allow you to know how much you can afford to spend on the equipment, and it will also give you leverage when negotiating with the seller. Getting pre-approved for financing is a simple process that can be done online or over the phone with a lender. Once you have your pre-approval in hand, you’re ready to start shopping for the equipment you need to grow your business.

Farhan Advani, BHPH

 

Consider Equipment Leasing Instead of Buying

As a small business, you can save on your capital by getting an equipment lease instead of a loan as leases have zero to a very small down payment. Leases cover all your costs including any taxes, service add-ons, and delivery fees. You have more options and greater flexibility with leases as you do not have to buy at once. You can decide to return your commercial pieces of equipment after the contract as collateral or repurchase them after the complete lease payment. The contract for the lease lasts from three to ten years with very low monthly payments.

Samantha Odo, Precondo

 

Lease Your Equipment in Bulk

Get all your business equipment needs handled in one go. Who likes clutter? Certainly not business owners. Purchasing your business equipment under a single lease will help to reduce pointless clutter of juggling multiple leases for your business needs. It may also save you money in the long run, as you may be able to get better terms on a larger lease as compared to multiple smaller ones. Bulk equipment leasing might cost you more out of pocket initially but you’ll save time, effort and money in the long run. Keeping your eggs in one basket has solid benefits when it comes to financing equipment.

Alex Chavarry, Cool Links

 

Check Small Business Administrations First

Before making a deal with any lenders, check with the Small Business Administrations to see if your business qualifies for any loan programs. If you do qualify, compare their term limits to the private sector. While you may get a better rate from a program loan, the process to get the funds can take around eight weeks, while regular loans can close in a much shorter time. Typically a program will give a more favorable effective rate, but you may choose to pay a slightly higher rate to get your equipment faster.

Ari Evans, Maestro

 

Partner Lenders Who Have Strong Relationships With OEMs

To keep machinery running throughout their lives, they require maintenance and insurance. Small businesses that partner with lenders who have strong relationships with OEMs and insurance firms benefit from integrated solutions that protect their equipment and investments. In-house financing is something that some equipment sellers may offer. However, for a business owner seeking a higher return on investment, it may be worthwhile to explore the role of seasoned financial firms, which are better positioned to provide invaluable expertise and better deals.

Robin Roy Krigslund-Hansen, Formula Swiss

 

 

 

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