For many entrepreneurs, it can be overwhelming to think about all the elements needed to get your business off of the ground. Oftentimes, things like rent, furniture, technology, etc. add up and require a huge initial investment on the owner’s part. Because of this financial burden, many look to small business equipment loans to help give them a boost!
Although these financing options may seem tempting, it is important to ask the right questions before signing any paperwork. That is why we sat down with seven small business leaders and asked them what you should know before moving forward with any equipment loan. Keep reading to learn the tips and tricks from people who were once in your shoes!
Early Payoff Language
You’re going to pay more for the equipment when you finance it than if you paid for it out of pocket. This is obvious and every small business owner knows this, but it can be a mental challenge for a small business owner that is used to having no debt and paying for everything up front. For a small business owner that typically pays cash for equipment, when signing equipment finance paperwork, you should know what the early payoff language is. Make sure you know what the calculation will be should you decide to pay the loan off early.
Carey Wilbur, Charter Capital
Exhaust All Other Resources
Before signing the dotted line on an equipment loan, business owners should make sure that they have exhausted all other resources. While getting an equipment loan can be a good financial option for some, equipment leasing may be a better choice, especially for those who are just starting their business adventure. Equipment leasing will allow new business owners to avoid a large down payment and ease the struggle of getting loan approval. Leasing means that business owners can get to using their equipment right away without having any holdups or having to put down a large sum of money.
Rex Murphy, Montauk Services
Research Given Interest Rates
Before signing off on an equipment loan, make sure that you have done thorough research on the interest rate you are being offered. Be sure to look into how close that number is to the median percentage for an equipment loan and also check in with other lenders to see what they are offering. Interest rates make a huge difference on a loan and it is crucial to make sure you are being given a fair rate.
Vicky Franko, Insura
Terms of Agreement for Damages
Understand the terms of the agreement when it comes to any damages. While not common, severe damages to equipment do happen and you must know how they impact your agreement. What are the terms of the warranty? Are you eligible for repairs? Do you need to replace the equipment? Conditions for situations like these tend to be an afterthought but could end up costly if you don’t understand them. No one should enter into an equipment loan without proper legal review of the loan documents.
Dan Reck, MATClinics
The Marketing Plan
The marketing plan after the paperwork is something that often gets overlooked by business owners financing new equipment.
“Great, you’re now the proud owner of XYZ equipment! How are you going to produce a positive ROI on your new investment?”
Having a marketing plan to execute after receiving equipment can help justify a deal and align your expectations with realities.
Brett Farmiloe, Financial SEO Company
Early Payoff Penalties
Know the terms of your loan and don’t be afraid to ask a lot of questions. If possible try to secure a better interest rate by putting money down and find out if there are penalties for paying off the loan early, should you be in a position to do so.
Anna Caldwell, Accredited Debt Relief
Net Present Value of Equipment
Each piece of equipment costs something. You need to figure out if a $100 purchase will make you more than $100 in the future. How much time will it save you? How many more orders will you be able to fulfill if you get one more machine? How much profit are you going to get? Answer these questions and you can figure out if you are making a smart decision.
This can be done by using Net Present Value, or determining how much money you are going to make in the future and subtract the cost of the purchase today from that number. For example, $100 equipment that lets me make 1 more order each month for $10 in profit will be a good purchase if my equipment lasts longer than 10 months ($10*10 = $100 total profit. $100 cost – $100 profit = $0 Net Present Value).
Layton Cox, Marketing Consultant