For many business owners, the prospect of financing equipment is overwhelming. The process of finding the right lender, filling out paperwork, and finalizing a deal can seem like an insurmountable task. What’s more, it can be hard to determine whether or not an equipment loan is the right option for a particular business. However, when done right, equipment financing can be a valuable tool in growing a small business.
There are several advantages to using this type of financing that many people don’t realize. We’ll explore five things that most people don’t know about equipment financing, and how they can help you make an informed decision about using it for your business needs.
- It’s not just for equipment.
Many people think that equipment financing only applies to the physical items used in business operations. However, this is not always the case. Depending on the lender, you may be able to finance other items that are essential to your business, such as software, installation costs, or even training and maintenance. It’s important to ask your lender about all the options available to you before finalizing a deal.
Equipment financing can be used not only for the purchase of new ‘equipment’ but also to finance upgrades or replacements for existing equipment, as older models can become obsolete quickly in certain industries. Furthermore, businesses can leverage the assets of their equipment to secure additional financing should they need it.
- Promotional rates from the Original Equipment Manufacturer (OEM) apply to BOTH leasing and financing.
One of the major differences between automotive and heavy equipment financing is that OEM promotional rates for both leasing and financing are often available in the heavy equipment world. This means you can choose either one depending on how you want to proceed. These promotional rates can also apply to larger pieces of equipment, such as excavators and bulldozers. OEM financing is often also available for small businesses with limited credit histories or a less-than-perfect credit score.
- You are not locked into the full-term length.
‘”4% for 60 months” doesn’t mean you need to commit to all 60 months. Certain OEM financial programs will allow you to take a shorter term and still keep the same rate. For example, a ‘4% for 60 months’ lease promotion can be modified to be ‘4% for 36 months’ lease program. This is great news for customers experiencing changing circumstances where a 60-month lease is no longer ideal.
Equipment financing offers flexibility and freedom when it comes to financing terms. Business owners can choose the length of their term from a variety of options ranging from 12 months up to 60 months, but not be locked into their choice if circumstances change.
- Modifying residuals can lead to improved payments.
Certain lenders have the ability to modify OEM recommended lease residual amounts to optimize payments for their borrowers. This can help business owners by allowing them to get a better balance between affordability and functionality when purchasing or replacing equipment and machinery. By adjusting the residuals, business owners are able to lower their monthly payments and pay off the loan faster.
In addition to the flexibility of adjusting residuals, equipment financing loans can also be structured for tax savings. Depending on whether your company is a C or S corporation, you may qualify for certain types of depreciation that can reduce the amount of taxes paid each year. This type of structured financing can help business owners save money in the long run while still achieving their desired objectives.
- Equipment financing can improve your credit score.
If you’re looking to improve your credit score, financing equipment can be a great way to do so. By making regular, on-time payments towards your equipment loan, you’ll demonstrate to lenders that you are a responsible borrower. This can help you qualify for larger loans and more favorable interest rates in the future. Of course, it’s important to always make payments on time, as missed payments can have a negative impact on your credit score.
Overall, equipment financing can be a great option for businesses looking to grow and expand. By keeping these three things in mind – that you can finance more than just equipment, that financing can be tailored to your business, and that it can improve your credit score – you’ll be better equipped to make an informed decision next time you’re looking to finance new equipment. As always, be sure to do your research and work with a reputable lender to ensure that you’re getting the best deal possible.