Businesses often require equipment such as machinery, vehicles, or technology. However, this equipment is extremely expensive, which makes it essential to find a source of outside funding. An effective solution to this dilemma is equipment financing, which involves obtaining an asset-based loan for which the equipment serves as collateral. Here are some tips on how you can get lower rates for your purchases through equipment financing.
The Basics of Equipment Financing
Equipment financing functions in a similar manner to a term loan. You take out a loan with the specific objective of purchasing equipment, and for a predetermined amount of time you make fixed payments until the loan is fully paid off. The equipment becomes the collateral for the loan. Some loans may give you up to 100 percent of the equipment’s value, while with others you make down payments of 10 to 25 percent. Interest is likely to be lower when you make a down payment. Unlike equipment leasing, with equipment financing the equipment is yours when you have finished paying for it.
Advantages of Equipment Financing
Because the loan is secured by the equipment you are purchasing, equipment financing is easier for most businesses to qualify for than other types of funding. Even new companies or those with low credit can qualify. Unlike other loans, which can take months for approval, you can obtain equipment financing in a matter of days. The application process also takes less documentation than with other loans. The interest rates are generally manageable, and if you make your payments on time you can improve your company credit score.
The Process of Equipment Financing
The first step is to locate the specific equipment you are intending to purchase, as lenders require detailed information about it. Consider your qualifications, and approach lenders that are likely to approve your loan request and offer favorable terms and rates. Complete your application and share the relevant paperwork, which besides the quote for the price of the equipment may include your driver’s license, credit score, tax returns, bank statements, and a voided check from your business.
For more advice on obtaining equipment financing, contact Magis Funding.