Equipment Financing refers to a loan that is taken to purchase business equipment or tools for production. It is one of the most simple and easy ways for businesses to get the required equipment without having to worry about substantial up-front costs. Business equipment is often considered a tangible asset.

Equipment financing enables business owners to rent equipment from a leasing company or vendors for a period of time. However, businesses must return, renew, or purchase the leased equipment at the end of this lease period. 

Leasing equipment is typically way more expensive in the long term compared to purchasing it, but for businesses, it is a different scenario as the costs will be lower on a monthly payment basis. This way, many businesses can improve their cash flow along with the working capital.

Equipment finances or loans can act as a lifeline for many business owners. They can quickly get finances for the total price of the goods while having the asset itself as a security for the finance. 

The equipment can include anything from machinery, tools, computers, software suite, and specialized industrial equipment essential to running your business and ensuring maximum productivity.

Few Types Of Equipment That Require Financing include:

  •  Manufacturing equipment
  •  Construction equipment 
  •  IT and office equipment 
  •  Electronics and appliances 

Equipment Financing Guide For Businesses In 2021 

As your business starts progressing, you need to consider upgrading and replenishing your inventory and ensure proper equipment maintenance. 

The following are few small business tips to get equipment finance for your company:

Always Ensure Your Credit Is In Good Shape 

Businesses should always ensure they have a good credit history with their previous loans, as a history of bad credit may work against your business when you try applying for equipment finance. Many lenders tend not to extend finances to small businesses as it can be risky. 

Therefore one of the crucial small business finance requirements is to make sure you have a good credit history. Business owners must take time and assess various important factors, such as a summary of your credit, the interest cost, and determine your FICO score, which lenders use before financing. This helps to fox your credit errors for a smooth finance approval process.

 Prepare A Solid Business Plan 

Many lenders will look into your business plan as a roadmap for your success and a bright future. Therefore, it is essential to prepare a solid business plan that includes details about your business, a description about your products or services, details of your current and future projects, your current cash flow system, set of goals and objectives for future business growth and the vision of your company. 

In addition, business owners need to Identify the target market and the socioeconomic demographics of their primary market and then explain how your product or service will fulfil a need within this market in the business plan.

This business plan will help provide a good synopsis of your business to the lenders. Therefore implementing a solid business plan should be a part of your strategy to secure your equipment finances. 

 Keep The Cash Flow Statements Ready 

Showing the in and out cash flow of your business is one of the most critical factors that most lenders require before issuing any kind of equipment loan, especially in the current terms. Therefore, business owners should ensure to get the business finances in order. 

One way to do it is by hiring a certified public accountant to go through your financial records. It is also vital to ensure you have both your personal and business financial statements in order so that the level of integrity in your reporting is accurate and ethical.

Accurate reporting is one of the best indicators that show how your business is doing in the real world and is one of the main things lenders consider when reviewing small business loans or finance requirements.

 Update Your Personal Resume 

Lenders tend to appreciate an updated personal resume with your finance application. In addition, it also helps you connect with the lender by providing critical insight into your character, which in turn supports your business plan documents.

Your personal traits will help support your small business plan as you are the one that will be responsible for the repayment of the loan. Therefore, keep your resume updated when you apply for equipment finance as lenders will always make sure you have a good credit for any equipment loans issued.

It is always essential for businesses to be prepared for the future by getting equipment finances without making the full payment at once. However, business owners need to be mindful about the type of equipment they choose to ensure steady cash flow that help them catch up with monthly payments. 

Conclusion 

Although traditional loans can be beneficial for small businesses, they are time-consuming and requires a lot of processing. Equipment finance is the best option when business owners need cash quickly on an urgent basis to replace or update their business equipment.

Therefore, Equipment financing is an excellent option for businesses that don’t want to use their working capital or other investment, which also helps you avoid interest rates on unsecured borrowing. This, in turn, helps to position your business for steady growth in future.