Exactly What is Business Equipment Financing?
Equipment financing is a type of small business loan used primarily to purchase business equipment like computers, machinery, vehicles or most any business equipment. Business owners may use the new equipment as collateral for the loan, making equipment financing a smart way to preserve on-hand cash.
What Are Qualifications For Loan to Finance Equipment?
Qualifications are generally similar for equipment financing as for many other types of small business loans. Lenders will consider the business owner's personal credit score, length of time in business, repayment history and company cash-flow.
However, one of the advantages of equipment financing is that you get to use the equipment that you are financing as collateral. This way you do not tie-up other collateral or free cash flow to make needed equipment purchases.
How Does Equipment Financing Work?
For many small businesses, you may finance equipment up to 100% of the value of the equipment. Most lenders will set the term of the loan equal to the expected useful life of the equipment. For example, most computers and software have an expected useful life of 3-5 years according to actuarial website AssetWorks.
Interest Rates for Equipment Financing
Like other loans, interest rates will be determined primarily by the credit worthiness of the individual owner, the asset being purchased and the health of the business. Interest rates can vary greatly, anywhere between 8-30%, so it is very important to shop around and get several quotes.