What’s a business owner to do when their equipment breaks down or becomes obsolete? You could spend money on costly repairs or take this opportunity to invest in machinery that meets your changing business needs.

There’s no denying how expensive new equipment can be, and that’s where equipment financing can really save the day. Today’s business equipment loans not only help you stay on track, but they can position you to invest in strategic upgrades without draining your cash reserves.

Why equipment upgrades drive growth.

Businesses face increasing challenges due to rising materials costs and customer demand for bigger and better experiences. If your equipment can’t keep up, you may disappoint buyers.

A coffee house, for example, could continue ordering parts for a 10-year-old espresso machine.

However, just one day waiting for that part could reduce sales during the busy holiday season, and doesn’t guarantee that another part won’t break soon after. It may even be difficult to find someone to fix older machines, and they often lack the intuitive technology that churns out better brews in less time for a more discerning modern customer base.

Compare that to getting a new, energy-efficient espresso machine with more brewing varieties. Not only does it churn out drinks during your busiest days, but it can keep employees happy as they use equipment that actually makes their jobs easier (and fun!) Parts are likely readily available and may be covered under new equipment warranties and repair plans.

How equipment financing works.

The basic idea of equipment financing can be similar to a traditional term loan in that the borrower applies for a loan to purchase the equipment and begin using it right away. This loan, however, only applies to the purchase of equipment or machinery; funds can’t be used to cover payroll or pay off bad debts, for example.

The equipment becomes the collateral. It secures the loan and ensures the borrower repays the debt. If the borrower gets behind on payments or defaults, the lender can use the equipment to recoup costs. This collateral is a mechanism to reduce lender risk and make more borrowers eligible for financing.

Because the loan is only for equipment, it may require a smaller down payment and often comes with predictable monthly payments that small businesses can easily plan into their budget. There are no surprise balloon payments, and businesses know how many payments they have left to make at any time.

Each lender has its own equipment financing options, which may include:

  • Equipment leasing, where a borrower can choose to keep or upgrade their equipment at the end of the repayment term
  • Standard term loan, where the borrower owns the title to the equipment while they pay, but the lender has an interest in the equipment
  • Line of credit, which can be used in amounts as big or small as needed to keep equipment maintained over time
  • SBA loans, which may be larger and cover more expensive machinery upgrades

Equipment financing can be used for new or used equipment, software, and machinery, depending on each lender’s requirements.

When to consider a business equipment loan.

If your equipment is so outdated that a breakdown is imminent, it may make sense to be proactive and purchase newer equipment before you lose even a day of business. Other scenarios could include:

  • When repairs cost more than new equipment, in either replacement parts or specialized labor
  • When outdated technology no longer meets your changing business needs or can’t remain compliant with new industry rules or regulations
  • When your business growth requires expansion in size, number, or scope of your machines
  • When equipment allows you to beat your competitors to a new market or capitalize on demonstrated interest from your existing customer base

Evaluating ROI on equipment upgrades.

Try to avoid the “sunk cost fallacy” with regard to your machines. This is a way of thinking where you may be reluctant to abandon old machinery because you’ve already spent so much to keep it running (even if you could easily save money by switching to new equipment).

Instead, calculate the ROI when possible:

  1. Estimate how much you’ll save and any new earnings from the new machinery.
  2. Compare it to the total loan cost, including interest and fees.‍
  3. Calculate how long it will take for you to pay back the equipment loan before you achieve profitability.

This ROI can tell you if you’re better off buying new equipment now or later. Don’t forget to include any tax benefits, such as Section 179 deductions for writing off the full purchase price of qualifying equipment. Financed equipment still counts for this benefit, even with depreciation. (Consult a qualified tax professional for personalized guidance and to maximize savings for your unique loan situation.)

Choosing and applying for the right equipment financing.

Consider these questions to help you pick the right financing:

  • Do you need only financing for machinery and tech? You may be right for a standard equipment loan.
  • Will you need to borrow again and again? A line of credit could suit you well.
  • Do you favor long terms, lower rates, and larger amounts? An SBA loan may cover what you need.

Applying for any of these options can be as easy as following these steps:

  1. Get quotes for the equipment that will best help you grow and stay competitive.
  2. Gather financial statements that demonstrate your creditworthiness, including tax returns, profit and loss statements, and forecast reports.
  3. Visit Lendio and submit one easy application in minutes.
  4. Compare offers from 75+ vendors to find the best fit for your needs.
  5. Select the right option and secure funding in weeks (not months).
  6. Buy the equipment you need to boost your business!

While your equipment needs may be complicated, securing funding doesn’t have to be. Lendio simplifies financing to keep you running at peak capacity, any time of year.