When you’re just starting a brand new business, procuring the equipment you need to set the wheels in motion, so to speak, would be the most delicate and important part of the deal.
Chances are, of course, that initially, you won’t be able to avoid suffering some expenses, but if you know what you’re doing, you can avoid these expenses getting out of hand.
In this article, we’re going to talk about equipment financing and how this model of procuring equipment for your business can help you during the initial stages of setting up your business. As you will see, there are multiple reasons why this model beats conventional bank loans with mortgages and whatnot, as you have more options to choose from, as well as more flexibility in the way you take the money on.
Here’s the deal.
1) Equipment Financing Covers a Large Part of the Equipment Cost
… but not the entirety of it.
You should know that if you apply for an equipment finance sort of deal, you will only get coverage of about 80-ish% of the overall value of the asset you’re acquiring. This means you will have to pony up for the remaining 20%, so you have to have some funds prepared for this purpose.
For example, if you’re starting a pillow-producing business and you need one of those machines that blow the foam or feathers into the pillow casing that costs about $50,000, you will get forty as a part of the equipment financing deal, while the remaining ten grand you will have to supply yourself.
2) You Can Opt to Lease
There are two ways to get onboard an equipment financing deal:
- Purchasing the equipment after you’ve paid off the monthly installments, or
- Leasing the thing and then choosing to either return it or buy it off after a while.
The thing with leasing is, if you do decide to buy off the piece of equipment you paid the lease for months for, you will end up paying more than if you just bought the thing, to begin with. That said, if you don’t need to buy this product straight away, or you don’t have the means to do it, leasing can be an excellent alternative.
3) Plenty of Funding Sources to Look Into
One of the most attractive aspects of securing financing for your business equipment through equipment finance would be that you can procure it from several different sources. (Not at the same time for the same item, of course.)
Commonly, many startup owners opt to make a deal with banks, as they offer steady interest rates and terms of the financing venture. At the same time, these well-established banks are typically also more requiring when it comes to your credit score, which may be a bit of an off-putting prospect for young entrepreneurs.
Alternatively, many specialized financiers only do equipment financing, and they are often known to have looser requirements and more flexible deals, but their interest rates may be higher.
4) Equipment Financing is More Readily Dispensed
… and acquired by startup owners.
With equipment financing, what you’re claiming is to have a desire to develop your business and you’re taking a loan, so you can work hard using the machines you need – which is more palatable for bankers and lenders than just a ‘give me money’ mindset.
5) Reduced Financial Burden Early on in Your Business Journey
Let’s say you’re running some sort of medical lab and you need a bunch of expensive equipment including those spinning chambers and a specialized vaccine fridge, but you don’t have the money to simply buy all of it all at once.
Equipment financing can save the day here, and let you run your lab or medical facility like a champ, while the payments will slowly roll in month after month. After you’ve established some sort of decent cash flow, you can put up several monthly payments in one month, for example, to speed up the payback process.
All in all, equipment financing can be a great way to cut down the costs of starting up a business. For a new entrepreneur just entering the market, every penny is precious, so getting on board with a deal such as an equipment-financing one can be a great solution.
About the Guest Author
Ayla Anderson is an avid reader and an enthusiastic blogger who writes articles on home improvement, business, Family, and beauty. She is also an MBA student who spends much of her time giving advice to new small businesses on how to grow their businesses. You can follow me on Twitter