Equipment financing refers to a private loan typically used to buy business-related equipment, including a restaurant oven, copy machine or truck. When you obtain an equipment financing loan, you will have to make timely payments which include principle and interest over a specified period of time.
Equipment financing can be used for many different purposes, such as purchasing new inventory for your business or to make necessary repairs on existing inventory. These loans are typically used in business to business sales and are a great way to increase the number of customers in your store. You should carefully consider the factors which go into equipment financing before taking out this type of loan.
One of the main considerations when you consider equipment finance is the amount of collateral, you will need to secure the loan. In general, the higher the amount of equity you have in your business, the greater the amount of collateral you can secure for equipment finance. Equipment financing can also be obtained through a mortgage, so long as the property you use as collateral has equity. Your equipment will be safer with a mortgage, so it may be worth the added risk to obtain this loan.
In addition to the amount of collateral you can secure, there are also some equipment financing pros and cons to consider. One of the main equipment financing pros is that it usually takes less time to receive money from this type of loan than traditional loans. Because equipment is used once and often doesn’t depreciate like property, the amount of time and effort spent on making repayments is relatively minimal. If you only need the money for a short period of time, equipment financing can provide the money fast.
When considering equipment financing, it’s important to remember that interest rates are usually higher for this type of loan. This means that you will end up paying back more money over the life of the loan. Equipment typically depreciates faster than most other types of assets, so if you’re planning to keep your equipment in active use over the course of a few years, you might want to think about whether you actually need the money in the first place. Most equipment financing work outs require that you have an immediate need for the money. It may not be worth the hassle of taking out another loan to pay for something you don’t really need.
On the other hand, equipment financing pros include the fact that it can provide cash quickly. Because there are very low risk factors associated with the equipment itself, the repayment terms are typically much longer. In some cases, it can take 20 years or more to recoup the cost of the equipment. Also, you won’t have to submit security for the loan like you would with a bank loan. The risk of not being able to repay the loan is eliminated, which can make equipment financing pros appealing for those who don’t have access to conventional lending options.