Regardless of the size of business you are running, there is a possibility that at some point you will need to purchase equipment such as computers, machinery and more. Actually, the equipment can be costly. And if you pay downright for a piece of equipment, it can be a monetary drain on your corporate, Mehul Mathrani said.
Hence, most businesses apply for small equipment loan in order to improve working capital. This is a more efficient method for small businesses as the payments can be spread over a set of the period. However, equipment loan works differently as compared to the standard business term loans. So, it is crucial to choose the right lender to get the money you need.
Furthermore, the lender also helps you to avoid pitfalls from unsuitable loans or deceitful lenders. In this article, you will find some differences and also some steps to prepare for the application process before making contact with a lender. Let’s have a look:
Review credit history and clear up any issues
One of the key concerns for financiers is the creditworthiness of the businessperson. Even if your credit score is not perfect, there are loans available, but it is necessary to clear up financial issues in advance of applying for a loan. Review the credit reports, correct any mistakes and pay any pending bills.
Create a list of required business equipment’s
When applying loans for equipment purchases, investors will consider cost and useful life emphasis Mehul Mathrani. They usually check for how long each piece of equipment can be expected to be in service – to ensure that lenders don’t make loans that outlive the life of the equipment.
Before you apply for a corporate loan to fund your acquisitions, research your equipment requirements, the prices and convenient life of each piece. This will help you ensure that the money you borrow as well as the term of the loan is suitable.
Determine your financing options
Loans for small industries available from different sources including traditional banks to non-bank alternative lenders. But not all loans will cover all equipment. Following is a list of lenders, permissible uses and some pros and cons for each:
- Banks: Commonly, banks provide loans on the basis of the business’s cash flow rather than on the value of the equipment. The bank lend can be a great option for recognized companies. And the lack of revenue and bad financial history means that startups typically do not qualify. Pros: Can be the best option for small and large equipment purchases because of lower interest rates and refund terms. Cons: You need to have strong credit and financial history. Generally, not available to for businesspersons with bad credit scores.
- Small Business Administration (SBA): The United States SBA does not make loans. In fact, the SBA offers assurances to investors to incentivize them to lend small businesses. SBA programs include micro-loans for small equipment acquisitions and loans for large equipment says, Mehul Mathrani. Pros: SBA-backed loans work well for many small business requirements and come with reasonable rates and terms. The loan work for startups and borrowers with bad credit. Moreover, it’s easier to get approval for SBA loan than traditional bank loans, worthy interest rates, and repayment terms. And the loans cover small as well as large equipment. Cons: It will take such a long time to get approval for the loan than some alternative lenders. Also, need personal guarantees on the loan or even additional security sometimes.
- Alternative lenders: These lenders, including peer-to-peer financers, fund working capital needs instead funding equipment. In reality, they are cash-flow lenders who make loans on the basis of business’s daily or weekly receipts. Pros: Easy to qualify and less processing time. Cons: The maximum loan that you can borrow do not surpass $100,000. Very high-interest rates and fewer repayment terms can make the loans very difficult for small businesses to manage.
- Business equipment leases: Leasing is a good alternative to buying equipment for many small companies. You do not have to pay the full purchase cost. Also, lease recompense is often lesser than loan payments would be for the same equipment. This is because you are basically paying to borrow the use of the equipment. The leases available are functioning leases and capital leases along with diverse tax insinuations.
Mehul Mathrani has given his overview above in hope to help small business owners. So if you are in need of equipment for your small business, then consider the above things before making any decision. All the best!