Equipment financing is an excellent option for businesses looking to acquire the necessary assets without breaking the bank. It provides a convenient and cost effective way to acquire the necessary equipment needed to run operations, while maintaining working capital and cash flow. This type of financing enables access to significant amounts of needed equipment that could otherwise be difficult or impossible to obtain through traditional financing methods.
Are you wondering if equipment financing is right for your business? Our guide will take you through everything you need to know using the 5W1H approach: what, who, why, when, where, and how.
What is Equipment Financing?
Equipment financing is a type of loan that enables businesses to purchase the necessary equipment they need to run their operations. It is a form of asset-based lending, which provides businesses with access to funds without having to liquidate assets or take on debt. With equipment financing, businesses can acquire the equipment they need at an affordable rate, without having to provide a large down payment or tie up their working capital. Additionally, businesses can often negotiate the terms of the loan to meet their specific needs, making it an ideal solution for those seeking flexible financing options. Equipment financing is also beneficial because it allows businesses to pay for equipment over time instead of all at once, which helps them maintain cash flow while still being able to access the equipment they need.
There are a few different types of equipment financing, each with their own unique features. The most common types of equipment financing include lease financing, equipment loans, and equipment sale-leaseback.
- Lease financing: This option lets a business lease equipment for a certain period, with an option to purchase the equipment at the end of the lease term. Lease financing can be attractive because it allows a business to upgrade equipment more often without worrying about maintenance and repairs.
- Equipment loans: This type of financing is similar to a traditional business loan, but with the equipment serving as collateral. Equipment loans are typically easier to obtain than other types of business loans because the collateral is tangible.
- Equipment sale-leaseback: This type of financing lets a business sell its existing equipment to a financing company, which then leases the equipment back to the company. This strategy can be useful for businesses who need to free up cash flow and keep equipment on-hand.
Who is Equipment Financing For?
Equipment financing is typically for businesses that need to purchase equipment for their operations or expansion. It usually involves the lender providing a loan or lease agreement for the equipment in exchange for a fixed monthly payment over a set period of time. Equipment financing can help businesses save money, because the payments are often lower than the company would have to pay for a single lump sum purchase and conserve their working capital as they don’t have to use up their current cash reserves to buy new equipment. That means businesses can upgrade their existing equipment quickly and easily without having to wait until funds become available in their budget. This also helps businesses stay competitive by allowing them to acquire the latest and most advanced technology for their operations.
Why Do I Need Equipment Financing?
Equipment financing is a great option if you are:
- Starting a New Business: One of the most common uses of equipment financing is for new businesses that need to purchase equipment. Starting a business is expensive, and it can be challenging to finance all the necessary equipment and start-up costs. Equipment financing can help by providing a loan that can be used to purchase essential equipment, such as vehicles, office equipment, and machinery.
- Upgrading Existing Equipment: Businesses that have been around for a while may find that their existing equipment is outdated or no longer fit for purpose. Upgrading the equipment can be costly, but equipment financing can help spread the cost over time. This can help your business stay competitive by ensuring that you have the latest and most efficient equipment available.
- Expanding: When a business is ready to grow, it often needs new equipment to support that growth. Whether you need to expand your production capacity or open a new location, equipment financing can help make it possible. By providing the necessary funds to purchase new equipment, equipment financing can help your business reach its full potential.
- Experiencing Seasonal Lulls: Some businesses rely on specific seasons to generate the majority of their income. For example, a ski resort may only operate during the winter months. In this case, it can be challenging to finance the necessary equipment upfront, as the business will only generate revenue for a few months. Equipment financing can help by providing a loan that can be repaid over the course of the season.
- Needing Lease-to-Own Options: In addition to traditional loans, equipment financing can also be used for lease-to-own options. This can be beneficial for businesses that need equipment but do not want to commit to a purchase upfront. With lease-to-own options, you can lease the equipment for a set period, with the option to purchase the equipment at the end of the lease term. This can be a great way to try out equipment before committing to a purchase.
The best part about equipment financing is that it allows businesses to start utilizing their newly acquired technology and tools quickly, instead of having to wait until they have accumulated enough capital to make the purchase. This eliminates the need for an upfront investment in order to get the job done.
When Do I Apply for Equipment Financing?
The right time to apply for equipment financing is when it is necessary to purchase new equipment. It is better not to delay the purchase of equipment, as this can increase the risk of downtime and decrease the overall efficiency of the business.
A great time to apply to equipment financing also presents itself when current equipment is need of an upgrade or maintenance, your company needs access to the latest technologies available in the market, or you require equipment for specific times of the year.
How Do I Get Equipment Financing?
Common requirements for equipment financing are at least a 600 FICO score, $10,000 in monthly revenue, and 2 years in business. Getting started is a fairly straightforward process. Here are the five steps to follow:
- Determine your equipment needs: Identify the type of equipment you need and the budget you have to work within.
- Find a lender: Research and compare lenders to find the best fit for your needs.
- Gather documentation: Prepare and gather financial statements, tax returns, proof of ownership, and other required documentation.
- Apply for financing: Complete the application and submit it to the lender.
- Get approved and close the deal: Once approved, you can close the deal with the lender and receive your equipment financing.
Where Do I get Equipment Financing?
When it comes to selecting a lender, it’s important to do your research and find one that fits your needs. Different lenders may offer different terms and rates, so it’s important to find one that best suits your business’s goals. Additionally, look for lenders that have a strong reputation for customer service and provide a streamlined application process.
We know you have options when it comes to selecting an alternative lender for your equipment financing needs and we hope you’ll consider CapFront. Our focus is on complete transparency with our clients, and our dedicated relationship managers are bonafide experts in business funding. When you come to us for equipment financing, we offer up to $80 Million, a 1–6-year term, monthly repayment, as low as 6% APR and funds as fast as 1 day.
Apply with CapFront and you can get the capital you need quickly, without hassle.