Feb 28, 2019
When growing your business is a priority, having the right equipment may be instrumental to your plans. If purchasing new equipment or upgrading existing equipment presents a challenge to your cash flow or you don’t want to spend down your cash reserves, financing may be the answer. Equipment financing is a way to get the equipment you need while growing your business in the process. This guide breaks down the most important things you need to know about financing equipment purchases.
Before diving into the different uses for equipment financing, it’s helpful to understand what it is.
Simply, equipment financing is a type of business loan used just for purchasing equipment. The equipment itself typically serves as the collateral for the loan and some lenders may not require a down payment. These conditions mean you don’t have to tie up any of your business or personal assets to secure financing.
Equipment financing is something virtually any business can take advantage of to grow if you know when to use it. Qualifying is typically easier compared to other business loans, such as a Small Business Administration (SBA) loan or a term loan. Generally, it’s possible to get equipment financing if:
In some cases, you could even qualify for equipment financing with a credit score below 650 if you can show the lender steady cash flow and revenues. As far as loan terms go, those requirements are different for every lender. When you connect with an equipment financing lender through Lendio, for instance, loan terms typically range from 1 to 5 years, with borrowing limits of $5,000 to $5 million.
Those loan amounts are also different from other types of business loans and lines of credit, which may cap borrowing at $1 million, $500,000, or less. Equipment financing can allow you to finance large-scale investments for short- or long-term growth projects.
Another benefit? In addition to being flexible, equipment financing can also be fast. Loans can be funded in as little as 24 hours, allowing you to move quickly on an equipment purchase. That type of speed is important if you need a key piece of equipment to keep your business running or if you come across a deal on equipment that’s too good to pass up.
Now that you know what equipment financing is and how it works, here are 8 ways businesses can use it to fuel growth:
Running a construction, contracting, or manufacturing business often means working with heavy equipment, which can be expensive. For example, if you’re in the construction or contracting business, your equipment needs might include:
On the manufacturing side, your equipment needs may vary based on what you produce. For example, you might need machine tools or a die cutter, woodworking tools, workbenches, fabrication equipment, or plastic molding equipment.
Equipment financing can allow you to purchase all of these things and more so that you can remain competitive within your niche. Upgrading your equipment could also allow you to expand your reach in the marketplace by branching out into new service or product areas.
In retail, ensuring that payments are processed quickly, efficiently, and securely is critical to building customer trust. When customers feel they’re spending too much time at the checkout or they’re worried about their payment and personal information being compromised by a security threat, they may be less likely to shop with you again.
Upgrading your point-of-sale hardware or software can ensure that your customers have the smoothest payment experience possible so they keep coming back time and again. With equipment financing, you can outfit your retail business with the most up-to-date point-of-sale tools, including:
These measures could help to increase payments security, potentially reducing losses as your business grows. You could also use equipment financing to invest in another loss prevention measure: an in-store security system, complete with surveillance cameras.
Certain pieces of equipment are critical to running a restaurant, cafe, or bistro. Without the right tools to store, prepare, and serve delicious eats, your restaurant may end up being a flash in the pan.
Depending on what kind of restaurant you have, that could mean buying:
That list is just a few items of equipment you may need to run your restaurant behind the scenes. On the front of the house, your equipment needs could include:
Cue equipment financing. Whether you’re in the beginning stages of launching your restaurant or you’re opening a new location, an equipment loan can put the tools you need in your hands to keep your diners happy and your business growing.
When your business centers around an office setting, you’ll need some things to make the workday smoother for yourself and your staff if you have employees. On your list may be things like:
If your office has a waiting area for clients, that space is another opportunity to use equipment financing to your advantage. You could use an equipment loan to buy sofas, chairs, tables, lamps, a coffee maker, a mini fridge to store bottled water, or TVs to keep clients occupied and comfortable while they wait, without having to tap into your business’s cash reserves.
Technology is ever-evolving, and new software programs are always in development. While software isn’t a tangible asset like construction equipment or office equipment, it’s just as important to the overall growth outlook of your business. If your competitors are using the latest and greatest version of particular software, you can’t afford to be 2 steps behind.
So what kind of software can you purchase using equipment financing? The list is lengthy, but it includes:
These software solutions may apply to any type of business. There are also computer software programs that are particular to specific industries. For example, if you run a construction business, investing in construction management software could make it easier to track and manage ongoing projects. If you have a small medical practice, patient scheduling software and medical billing software may be essential for growing your patient list.
Aside from purchasing the most current software version, you’ll also need something to run it on. Equipment financing can allow you to buy or upgrade your business’s desktop computers, laptops, and tablets.
Your business may rely on certain appliances from day to day. Some may affect your ability to grow directly (think refrigerators or ovens if you run a restaurant), while others can help drive growth indirectly.
For example, say you run a small accounting firm with half a dozen employees. If you have an employee break room or kitchen where they can make and eat meals, you’ll need to make sure they have the right equipment.
At the very least, that room may require buying a refrigerator, microwave, and coffee maker. That money may be well spent, however, if your employees can recharge their batteries during a break and be more productive once they get back to their desks.
Then there’s equipment that certain businesses can’t operate without. If you own a dental practice, for instance, you can’t treat your patients effectively without dental chairs, cleaning tools, and x-ray machines. Running a garage or body shop might require you to have hydraulic lifts, air compressors, sanders, or paint booths. Those purchases are made easier with equipment financing.
Vehicles are integral to certain businesses. For example, you may need vehicles or trailers if:
You could lease vehicles for your business, but purchasing vehicles may be more cost-effective if you plan to use them for the long haul. If you pay off an equipment financing loan in 5 years and the vehicle you’ve purchased is designed to last 10 to 20 years or longer, that option could make more sense for your bottom line than leasing new vehicles every few years.
Equipment financing makes it possible to start or expand your vehicle fleet, which in turn can help you grow your business. More vehicles mean more customers you can serve, more products or freight you can ship, and more deliveries you can make. And all that adds up to more revenues on your business income statement.
A final equipment expense category covers your business premises and different improvements or upgrades you may consider making as you grow.
For example, one of your goals might be making your business premises more eco-friendly and sustainable. In that scenario, you could use the financing for:
The benefits of these types of improvements are twofold. First, they can save your business money by reducing your energy costs, freeing up capital you can redirect elsewhere. Second, these measures can reduce your ecological footprint. That change is good for the planet — and it may also be good for your bottom line if more customers are encouraged to use your products and services because you’re making a visible effort to promote sustainability.
Growing your business can be a slow process, but equipment financing can help you pick up the pace. If you’re unsure whether equipment financing is right for you, consider what you stand to gain. For example, if buying a piece of equipment allows you to cut down on the amount of time required to handle invoicing and payroll each work or adding a new vehicle to your fleet lets you deliver products to your customers faster, your business benefits.
The important thing is to compare your equipment financing options from different lenders before committing to a loan to ensure that you’re getting the best terms for your business. You can get equipment financing quotes for free through Lendio, without impacting your credit. If you’re ready to finance your next equipment purchase, head here to get started.
Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.