Vendor financing may seem like the obvious answer. It requires little paperwork, time commitment and avoids the hassle of interacting with institutional lenders. However, vendor financing is a much more expensive way of buying equipment than taking a loan product from a traditional bank.

For example, generally franchises tie-up with a select group of equipment financing institutions to offer their franchisees equipment purchasing opportunities. Interest rates on these products can range up to 200 to 400 basis points higher than on a financial product from a traditional bank.

Even gas companies offering prospective gas station owners acquisition financing deals can hike interest rates up to 400 basis points. Not to mention, they’ll lend at a 15-year term and build in a surcharge on fuel sales while a conventional banking product is generally spread over a 25- to 30-year term with no additional fees on fuel sales.

Small business owners need to weigh the 200 to 400 basis point cost savings and the 5 to 7 year longer payback period against the initial hassle and time commitment of gathering documents.