If you own a construction or a shipping company or you run a farming or healthcare business, certain equipment is essential to operate your business. If you have a small business, you may not need heavy equipment but you certainly will require computers, desks and other supplies. Not everyone has enough capital to purchase the required equipment upfront. Sometimes, you may even have to buy equipment in the midst of a financial crunch. If you do not replace the equipment in time, your business will be at a standstill and you may suffer losses that can take years to recover.
If you do not have enough cash reserves to finance an equipment purchase, you can benefit from equipment financing. It is similar to a business loan but an equipment loan is specific to the acquisition of items required to run your business and is much easier to acquire. You have to look up for the financial institutions or creditors that offer equipment loan and you can get funds for anything from a vehicle, furniture, and commercial oven, to ultrasound machines and construction machinery.
Once your business equipment financing gets approval, you can acquire the item and when you have paid for the equipment you can own the equipment as your own. When applying for an equipment loan, you do not need collateral, as the equipment is the collateral itself. If you are unable to pay according to the decided terms, the lender can simply take the equipment from you instead of waiting for you to pay the loan amount.
The amount for equipment loan depends upon the price of the equipment and also on the kind of business you own. That said, it is easy to qualify for equipment loans and you can use it to finance both new and old equipment. Before applying for equipment financing you should do a careful assessment. This article goes over a few things to avoid while applying for an equipment loan.
Going To The Wrong Creditor
You should do a comprehensive research before applying for an equipment loan. Not every creditor pays for every kind of equipment. It may be that you require an equipment loan for delivery trucks but the creditor only gives loans for small equipment like office desks and computers. Before going to a creditor with your application, you should know the minimum and maximum loan the creditor can offer you for your desired equipment.
Having a Bad Credit Score
As a business owner and as a person who is applying for a large equipment loan, you should not have a bad credit score. The creditors check both your personal and business credit score to ascertain your credibility as a borrower. Before applying for the equipment loan, you should make sure that your business credit score is not less than 75 and your personal credit score is at least 600. If your credit score is slightly below these numbers, there is a great probability that you will get the equipment loan, as the conditions for such a loan are not quite stringent. However, your credit score should not be very low. You should not apply for an equipment loan with a bad credit score.
Applying As A New Business
If you are just starting out and applying for business equipment financing without collateral, the chances of approval are pretty slim. Most of the lenders approve the equipment loans of businesses that have been in the market for at least two years. You may be able to find some lenders that will lend to newbies or startups but the interest rates are usually on the higher side. So, if you are applying for an equipment loan as a startup, go to the lender when you have been operational for a year or at least six months. Moreover, do not expect normal interest rates if you are applying for an equipment loan without collateral. The lender will want to secure the funded amount by granting it to a credible business and a business’s credibility is proved if it has been in the market for a while.
Applying Without A Plan
Do not make the mistake of applying for the equipment loan without a plan. Creditors do not consider such applications worthy. You should go to the lender with a detailed plan of why you need the equipment, how do you plan to use it, what kind of revenue you can generate with the said equipment, how will you be affected without the equipment, etc. The more details you can provide about the equipment and how it will affect your business, the more likely it is that your application will be approved. However, you should not overdo it. The lenders appreciate concise and accurate details. In contrast, applications that just list the equipment and the financing you need are not entertained by the creditors. Therefore, you must avoid this practice while going to the creditor with your application.
Just like a detailed plan is essential in order to increase the probability of your loan application being accepted, detailed credit history is also important. You should approach the lender with your bank statements, tax returns, financial documents, and business license. It proves the credibility of your business. Furthermore, you are presenting all the important details on your own for the lender’s scrutiny. It increases the likelihood of acceptance of a loan application. If you go unprepared with only a few documents, the creditor may think you are trying to hide something. This can work against you as incomplete details make the creditors vary. So, make sure when you apply for an equipment loan, you have all the required documents and you present those along with a detailed plan.
If you believe you can pay off the equipment loan in a short period of time, then choose a plan that allows you to pay back in a minimum time period. There are certain cases, where the creditors do not allow you to pay off the loan before the time period is up, even if you can easily do so. The longer the duration, the greater the interest rate you have to pay. Therefore, be careful about the loan terms before signing up for the loan. Do not just accept any terms. Go for the loan terms that are in your best interest. There are a number of creditors out there, you can certainly find the one that can give you the best deal.
Whether you are applying for a business loan or an equipment loan, a little homework will help you in getting the best deal. No one likes to pass off an opportunity to save money and also get the best deal. That is where your research about the whole process will help you. Good luck with your equipment financing!