Businesses usually require a wide range of equipment. For instance, businesses in the service industry require not only professionally-trained personnel, but also sophisticated equipment. A printing firm, for instance, will need high-capacity commercial printers to meet the growing demand for their service. A laundromat, on the other hand, will need high capacity dryers and washing machines. Manufacturers, packaging companies and processors, will also need new plant and machinery to meet their business needs. Since most firms usually have limited capital, financing is often needed to acquire new equipment.
Equipment Financing Options for Businesses
When a business owner decides to acquire new equipment, the first option they have is to take a commercial loan based on the financial statements of the business. Unfortunately, these loans are usually small, short-term and costly. The second option is to use the titles of vehicles and real estate owned by the business as collateral for a loan. However, many small businesses do not have any assets to use as collateral for a loan. The best option, therefore, is equipment financing. This is a loan offered by lenders specifically for the purchase of equipment. The lender retains legal ownership of the equipment, which acts as collateral for the loan. However, the business gets full possession of the equipment and can use it to generate more money.
Benefits of Equipment Financing Loans
The best thing about equipment loans is that no additional collateral is required as the equipment being purchased is sufficient collateral. In case of default, the financier only needs to repossess the equipment and auction it. This makes these loans incredibly convenient for businesses. In fact, it is the best option for small businesses that are just starting up.
ii) Long Repayment Periods
Equipment loans are secured by the asset itself. That is why lenders are usually willing to offer long repayment periods for the loan. As a result, business owners are able to meet their monthly payments hassle-free. A long loan term means that monthly payments are low.
iii) High Loan Limits
Since the equipment financing loan is fully-secured, lenders are often willing to approve higher loan amounts that can be serviced over a period of several years. This means that business owners can get almost any equipment they need to grow their business provided they have a sound business and sufficient revenue.
iv) Free-Up Working Capital
Most businesses have limited capital. There is no need of spending the limited capital on acquisition of equipment. Taking a loan to purchase the required equipment is a much more sound business decision as it will free up capital.