Use of Equipment Financing

Equipment financing is a lease or a loan used to buy assets for a business. This covers all kinds of assets including a vehicle or an additional instrument. Usually, businesses acquire equipment financing through different financing solutions, and in the following situations.

• When they need slightly expensive equipment but are unable to afford it, as it needs to be paid for up-front.
• When they need to change their equipment regularly because it has a very short span of operation, or if they need to keep themselves on par with the latest technology.

Considering these situations, it might sometimes be right to say that equipment financing is the right option for your business. There are two different types of it: equipment leasing and equipment loaning. These two things help you achieve the same goal but have differences in the methods followed to achieve them. Below is a discussion regarding the two.

Equipment Loans

An equipment loan is a loan acquired out of the need to purchase equipment. Usually, the equipment loan is secured by placing the equipment itself as collateral. This means that in the case of an inability to repay the loan amount, the equipment would be seized or sold by the lender.

This suits business owners who are looking to purchase equipment for long-period use, but are unable to pay for it at the beginning. Lenders may be willing to pay you the major portion of the capital needed, and you would then have to repay them periodically and in installments. There are a few things you need to be wary of here. Such loans provide you only 80% – 90% of the expense, and you are left to cover the remaining. Furthermore, this would cost you more on the overall than the original amount borrowed.

Equipment Lease

Equipment Leasing is a good choice if you need to trade your equipment often, or if you cannot afford the full capital needed to pay back a loan. In this method, instead of borrowing money to buy equipment, you pay a fee to borrow equipment. Therefore, technically, the leasing company (lessor) is the owner of the equipment but allows you to use it.

Equipment financing is the best option for businesses looking to purchase equipment but unable to afford them in the near future. The above are the two types of equipment financing available, which you should choose between after careful consideration.

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Traditional Term Loans

Traditional term loans are sometimes referred to as medium-term loans. These are among the commonly used secured business loans. These loans are comparatively straightforward. The business borrows a sum of money, which should be paid back along with interest. This should be completed within a duration allowed to them. Although it is possible to get a medium-term loan from online lenders, banks are the usually frequented place for traditional loans.

Banks usually request you to offer security in the form of collateral. You should be ready to offer vehicles, savings, equipment, or real estate holdings for this type of secured business loans.

SBA Loans

Among secured business loans, SBA loans are a good financing choice for small business owners. There are three different programs offered by the SBA which are the Microloan Program, the CDC/504 Loan Program, and the 7(a) Loan Program. These loans are not directly offered by SBA. Instead, these are business loans which have been guaranteed by the SBA.

SBA stands in as the guarantor of the loans. They guarantee a proportion of the loan in order to motivate the lenders to finance small businesses by offering incentives. It is beneficial for both lenders and business owners. Lenders risk less and businesses can avail larger loans which they would not have qualified for otherwise.

Business Lines of Credit

Business line of credit is another option under the secured business loans. This works similar to a credit card. Businesses are given a pool of funds which they can draw from upon need. Later they only have to pay back what they used. After the business repay the amount, their account gets refilled to the initial amount by the lender. There are options to use secured and unsecured lines of credit.

Above discussed are some of the different types of secured business loans. Each has its own benefits and downsides. Make sure you understand them properly before you choose one of these to help your businesses.

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