Everything You Need to Know About Equipment Financing
Many businesses are unable to properly function without machinery, vehicles, technology, or other forms of equipment. However, some types of equipment can be prohibitively expensive to startups or other companies struggling to maintain strong cash flow. One solution to this dilemma is equipment financing, which involves taking out a loan specifically for purchasing equipment. Here are some details on how this form of funding works.
Equipment Financing Basics
The loans you obtain for equipment financing are similar to standard business term loans. You receive up to 100% of the value of new or used equipment, and you pay back this amount with interest in fixed payments. It is known as asset-based lending because the equipment itself serves as collateral for the loan. Usually, no other collateral is required. However, you may need to submit a down payment of 10 to 25% of the equipment’s value.
The Application Process
Firstly, locate the specific equipment you are interested in buying. Lenders want to know details about the equipment’s condition and cost. Some lenders are more flexible about credit ratings than others. Therefore, check your credit score to find out which lenders you qualify to work with. If you need the equipment quickly, online lenders typically respond faster than traditional banks. Besides the equipment quote, be prepared to submit your credit score, driver’s license, bank statements, tax returns, and a voided check from your business.
Benefits of Equipment Financing
Equipment loans can generally be obtained much faster than other types of financing. The application and approval process is easier for equipment financing than with other forms of loans. Especially when you work with online lenders. Because the equipment itself serves as collateral, you avoid having to risk other assets. Additionally, making timely payments can help your company’s credit score to improve.
For more advice on equipment financing, get in touch with TCF Capital.