When starting a new business, it’s important to have an accurate understanding of the resources that can help bring the business up to par with competitors. One of the most crucial resources for helping businesses secure the resources they need is equipment financing.
Equipment financing helps provide businesses with the supplies they need at rates they can afford on terms that are convenient for them and the loan servicer. For more details and insights about the benefits of equipment financing, read below.
How Does Equipment Financing Work?
The standard process of financing equipment entails using a loan to purchase the materials and tools needed for operating a business. Although it sounds simple, there are numerous things to remember during the equipment financing process which include:
How Do You Qualify For Equipment Financing?
Requirements for equipment financing vary depending on financial institutions, but generally speaking, Business owners can qualify for equipment financing by maintaining high personal and business credit scores.
Another way business owners can increase their odds of securing equipment financing is by presenting a thorough business plan that outlines the roadmap for how the business earns profits.
How Long Can You Finance Equipment?
Most equipment financing loan terms last anywhere between two and seven years, but the exact terms are determined by the financier providing the loan.
Can I Finance Used Equipment?
If it’s in the best interest of the business owner and the financier allows it, you can finance used equipment.
Does Equipment Financing Help Cash Flow?
Financing equipment can be helpful in maintaining cash flow because it minimizes up-front equipment costs which frees up funds for more pressing needs.
Can I Use Section 179 Tax Deduction For Equipment Financing?
The Section 179 Tax deduction can be used for equipment financing.
Types of Commonly Financed Equipment
Certain types of equipment are frequently paid for using financing plans. That type of equipment includes:
- Dump Trucks: Since dump trucks can cost business owners more than $150,000 financing one instead of purchasing it outright is an attractive option.
- Refrigerated Trucks: Refrigerated trucks are essential, but their $70,000 price tag can often lead to business owners choosing to buy them using financing plans.
- Tractor Trailers: Another costly purchase for business owners is tractor trailers. Since they cost around $175,000 business owners often seek ways to purchase them using financing.
- Automobile Lifts: Automobile lifts are essential for businesses in multiple industries, so it’s fairly common to see them purchased using equipment financing.
- Excavators: Excavators can cost upwards of $500,000 and help business owners in numerous industries which is why it’s commonly purchased using financing plans.
Things to Consider When Choosing Equipment Financing
There are numerous vital details to remember when seeking equipment financing. Some important things to keep in mind regarding equipment financing include:
Eligibility Requirements
Eligibility requirements for equipment financing are different depending on numerous variables including the annual revenue the business brings in, proof of solid cash flow, along with a respectable credit score of at least 650 or higher in most cases.
Rates, Terms, and Loan Amounts
Rates, terms, and loan amounts refer to the core tenets of any equipment financing agreement. Before agreeing to finance equipment, make sure the interest rates are clear, along with the amount of the loan and its terms.
Keeping Up With Newest Technology
Among the many challenges that business owners are faced with is having to decide whether it’s better to settle for slightly older equipment at a discount versus buying up-to-date, state-of-the-art equipment. By taking advantage of equipment financing, business owners can leverage the latest technology and equipment at costs that are affordable for them.
Tax Benefits
One of the biggest benefits of equipment financing is that business owners can write off the entirety of the lease payment as a business expense. Even if the entire amount for the equipment cost isn’t paid off, Section 179 of the IRS tax code allows business owners to write off the costs as long as an equipment lease has been established.
Equipment ROI
Equipment financing contributes to higher ROI by allowing business owners to make smaller payments while the equipment continues to earn funds for the business as opposed to making one large lump-sum payment before the equipment has had the chance to generate income.
For instance, if the equipment was purchased upfront, then breaks or becomes unusable shortly after that money that was spent on it is lost. When equipment is purchased under an equipment financing plan, even if the equipment breaks, the owner is out of less out-of-pocket funds than if they would have paid the full cost upfront.
Advantages of Equipment Financing
The biggest advantage to equipment financing is the ability to get the equipment needed with the flexibility of smaller payments that are made on a timeline that’s convenient for the business owner.
Another benefit to equipment financing is that it provides businesses with near-immediate access to the equipment they need, instead of having to save up for months before being able to buy what they need.
Disadvantages of Equipment Financing
While there are numerous advantages to equipment financing, it does come with downfalls which can include high-interest rates that aren’t negotiable, often leading to business owners paying more than the original cost of the equipment.
Another downside is that if the equipment breaks down the business owner is still responsible for maintenance costs, along with the payments that were established within the terms of the equipment financing agreement.
Equipment Financing vs Equipment Leasing
Although they’re similar, equipment financing and equipment leasing both serve different purposes for consumers. Equipment financing refers to borrowing money from a financier with the intended purpose of purchasing the equipment.
The loan servicer provides either partial or the full amount necessary for the purchase. In return, the borrower agrees to pay back the amount plus interest, on a regular payment schedule that all parties agree to.
Equipment leasing refers to renting equipment from a provider for an agreed-upon period of time in exchange for monthly payments. The payments are made throughout the terms of the lease, and when it ends the borrower has the option to buy the equipment in full, return it or continue the lease.
Flexible Equipment Financing Options from TAFS
Deciding whether or not to purchase equipment using equipment financing options can be a difficult decision to make. Fortunately for business owners, securing equipment financing that coincides with the long-term goals of a business is possible with TAFS.
TAFS offers asset-based lending programs that are geared towards getting businesses the capital they need to reach their goals. If you’re on the search for options for equipment financing, get more insight about TAFS business lending and equipment financing online today.
