What Every Business Owner Should Know About Equipment Financing

Do you have any current business processes that are working slower than usual? Is there a piece of equipment that could increase this process significantly? Every business owner knows it takes money to make money. Sometimes acquiring that new piece of equipment is just what the business needs to propel its growth.

Buying equipment can be a troublesome task because it involves a lot of money. Most businesses opt to finance equipment because they either do not have the capital or want to take the capital from the business to purchase the equipment outright. Equipment financing helps you finance 100% of a new or used piece of equipment. Financing is typically a fast and efficient way to secure the equipment you need now.

What is Equipment Financing?

Equipment financing is a loan that allows a business owner to purchase new business equipment by using that piece of equipment as collateral. This is also referred to as a “self secured loan”, meaning the equipment itself acts as collateral. If you can not afford to pay back the equipment loan the lender seizes the equipment and liquidates it for cash to offset their losses.

If you have ever had an auto/car loan equipment financing works in a similar fashion. The cost of an equipment financing loan is fixed and ranges between 8%-30%. The length of the of the lease depends on the specific type of equipment and how long this piece of equipment is expected to be used for. The lease term is typically equal to the useful life of the piece of equipment.

Most equipment financing companies can provide funding within 2 business days.

How is Equipment Leasing Different from Financing?

Financing a piece of equipment is not the only option. Some business owners choose to lease the equipment instead. While there are some advantages to leasing, with equipment financing you will own the piece of equipment after the loan has been satisfied. Whereas with equipment leasing you will only be able to use that equipment while you are leasing it. If you are looking for a temporary solution, leasing would be a sensible option. If you are looking to use the equipment long term, financing would make more sense.

Who Qualifies for Equipment Financing?

Most businesses can qualify for equipment financing. The value of that specific piece of equipment, your credit score, and the business credit will determine how much you qualify for and the interest rate you will pay.

Most customers who were approved met the following criteria:

  • Annual Revenue Over $130K
  • Credit Score 600
  • Time in Business Over 2 Years

Most business types are able to qualify for equipment financing for the following equipment:

  • Heavy Machinery
  • IT Equipment
  • Computers
  • Commercial Vehicles
  • Business Gears

How to Decide If The Cost of Equipment Financing Is Worth It?

The first step in deciding if the cost of equipment financing is worth it is to take a close look at your business finances. For example, if the piece of equipment you desire costs $25K would paying for it upfront hurt your cash flow too much?

Will waiting to save up the $25K hurt the business more due to lost profits? It’s important to consider what profits could have been made had you been able to procure the equipment much earlier. Basically you have to determine if the opportunity cost of waiting and saving will outweigh the interest you will need to pay to be able to finance the piece of equipment.

Contact a Merchant Funding Solutions loan consultant today for an equipment financing consultation.



The information and insights in this blog post are provided for educational purposes only and do not constitute financial advice from Merchant Funding Solutions Inc. Please consult your financial advisor before making any business financing decision. For information about Merchant Funding Solutions products and services, please visit the Merchant Funding Solutions FAQ page.

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