In order for such businesses to operate and fulfill their obligations, they will need to find a good and reliable financing option that will make the money required available. And that is where equipment financing comes into the picture.
Equipment financing is the term used to describe the process through which a creditor or investor extends capital to a business for the purpose of buying or acquiring equipment needed for the business to operate. Often, it is the financed equipment that will serve as collateral. As such, equipment financing approval is often faster and more convenient compared to other types of financing.
Now, there are basically two types of equipment financing. These are:
Equipment loans: This is where the business is given a loan for the specific purpose of purchasing equipment it requires.
Equipment leasing: Under this option, the business rents the equipment for a specified period of time instead of owning it. Once the term is over, the option of either purchase the equipment at a lower price or could opt to lease new equipment.
As an entrepreneur or business in need of equipment but without the means to finance the purchase, you have many options to work with. All you need to do is approach a creditor or investor, present your case and wait to either get the money you need or to enter into a leasing agreement with the involved parties.
Understanding all that, it is essential that we we learn more about some of the different financing options available to better understand equipment financing. Some of the available financiers or financing options include:
First Tier Lenders
The traditional first tier lenders are often the first option business owners think of when looking for money to buy equipment as most of these institutions are willing to provide the funding needed if the applicants’ goals and needs are realisable, and if their business credit report is solid. As a matter of fact, there are lenders that have set up commercial lending plans for small businesses that are establishing themselves.
However, the flip side of approaching one of these lenders for financing is that they will normally charge interest rates for the money they lend to you. As such, the longer you will take to repay, the higher the interest rates will be. The good thing however is that you get the money you need to get off the ground and to start operating. If you are looking for a reliable way to finance your equipment purchase, then consider approaching your local lender with well written equipment financing proposal for a chance to get the finances you need.
Another suitable avenue to find the capital you need to finance the purchase of the equipment you need is approaching private investors. Private investors are best if you are looking to come up with significant funding fast and have a strategic partner by your side. The two most common types of private investors are angel investors and venture capitalists and they both often invest during the initial growth stages and will often want equity share in exchange for the investment they made. If you are hoping to get financing from such investors, it is important that you have a solid business plan that will prove the reliability and sustainability of your venture.
Merchant Funds Advance
Merchant funds advance may be a suitable option for businesses that are making at least $5,000 in debit or credit sales each month. Under this option, if you meet these eligibility requirements, the merchant could give you up to $250,000 as capital to purchase the equipment you need. However, in return, the merchant will take a percentage of the money you get from your debit and credit transactions until the sum loaned is fully paid back. This option is the most commonly used as there are no credit checks, the advances are processed faster than traditional loans, and because these advances are available to most businesses. The flip side however is that most of such companies charge exorbitantly high interest rates as compared to what most traditional lenders will charge.
The above are some of the available financing options when it comes to equipment financing. It is important that you consider, and take time to research on each of these options, and more, to find a financing solution that will work for you.