Every business, no matter what its size, needs some type equipment. From truckers to landscapers, who need lawn mowers and power saws, to restaurants that need kitchen equipment, small business owners at some point will make a substantial investment in equipment.
Sometimes they have the financing already in place. Other times, for higher ticket items, they must borrow money. That’s when equipment financing comes into play. This funding can cover the costs of vehicles, computers and printers, and manufacturing equipment, which generally are high ticket items.
Interest rates vary – from as low as 8% to rates that are much higher, depending on the type of lender. Depending on the amount required and the borrower’s creditworthiness, funding can come as quickly as a few days. If the amounts are smaller, the funding can be done through a business line of credit. If the situation is dire and the equipment is needed right away, that can be accomplished, too. However, fast funders, such as cash advance companies, can charge 30% interest rates or more.
If you have two years’ worth of financials ready and a business credit score of 650+, your company likely will qualify for equipment financing. But, according to Manufacturing Business Technology magazine, there are several questions that business owners should ask, before they order equipment, including:
- How will I use this equipment in my business?
- What is the monthly payment and are there any other costs that I could incur before the financing period ends?
- What happens if I want to end this financing agreement early?
- Am I responsible financially if the equipment is damaged before the financing period ends?
- How will obtaining equipment impact my cash flow?
Weighing whether or not to buy obtain new equipment is an important decision. If you are replacing old, broken equipment, there may be little choice. If the purchase means an expansion, a business owner must project the expected additional revenue and then make the determination whether the revenue increase is worth the expense.
Another important decision – one with cost implications – is whether to get new or used equipment. New machinery typically comes with a guarantee, and there is the knowledge that the equipment has not been abused. However, the price will be higher than that paid for used equipment. When the purchase is made second-hand, there is an element of risk required since there is no way to know how well the equipment has been maintained over the course of time. These are important factors to consider before financing equipment.