5 Essential Equipment Loan Tips for Small Business Owners
Are you tired of using old or outdated equipment in your business? Would you like to try new machinery for your growing firm? If yes, equipment financing can be helpful to your business. According to Forbes, nearly 82% of companies experience a downtime event that impacts their operations.
Today’s business environment is very competitive, and a single breakdown can make you lose clients or profits, hence the need to keep up with reliable equipment. An equipment loan helps you acquire the office tool/machine you need and pay later. If you want to try this financing option, keep the following tips in mind to streamline the process.
1. Plan Well For Equipment Loan
Everything starts with an excellent plan to avoid future regrets. Do you need new equipment? What is the right time to buy it, and how will you repay it? As a small business owner, you shouldn’t get a new equipment loan simply because others are doing it. You should analyze your current financial situation and understand the equipment loan rates. Keep the below things in mind while planning for your equipment loan.
Know Why You Need the Loan
Your financier will need to know why you require new equipment, and you should have a good explanation for it. Your reasons should be valid to increase your chances of securing your loan. You can acquire the loan to upgrade old ones, expand your business, or replace the high labor costs.
Understand the Equipment You Want
There are many office tools and machinery brands, and having a specific one in mind is recommended. Research the available tools, features, and prices to spot the one you need. The right equipment from a reputable brand should be efficient.
Plan on Repayment
Obtaining a loan is easy, but you should also have a reasonable repayment plan in mind. Usually, a lender will examine your financial report to know your repayment eligibility, so you should have everything in mind. The lender may repossess the asset in case of your default because it is used as collateral.
2. Decide Between Equipment Loan and Leasing
Equipment financing has two main options. You can acquire the tool through a loan or lease it if it’s too costly. These two options are great; you can choose any of them based on your unique needs. Would you rather buy or lease? Both options are great, and most equipment finance lenders allow buying and leasing, so you must make an informed decision.
Ideally, you should consider a loan if:
- Your business is capable of providing the percentage down payment required by lenders
- You will be using the equipment for an extended period, so you need to own it
- On the other hand, you can consider leasing if:
- You only need the equipment for short-term use, meaning you can return it shortly after use
- You don’t have the down payment required for equipment loan
Weigh the two options and choose the most appropriate for your business needs.
3. Find the Right Lender For Equipment Loan
Finding the right lender for your loan is essential when planning to take an equipment loan for your small business. Nowadays, you can be overwhelmed by the number of equipment lenders available both offline and online; hence, you should be keen on your selection. The ideal financier should understand your needs and should be affordable. Here are helpful tips to consider when choosing the right equipment loan partner.
Check the Services Offered
Find a lender who offers explicitly equipment financing. You can walk into the lender offices or search for equipment loan lenders near me to get helpful suggestions. The ideal lender should offer equipment loans and should have in-depth knowledge in the field to support you.
Consider the Experience
A wealth of experience is vital when choosing a lender. While there is no problem with getting a loan from a new institution, older ones are more experienced and have better connections with equipment suppliers. Find out the length of experience of your preferred lender, and check their portfolio to confirm they have offered such loans before.
Check the Reputation
A loan is a critical financial decision, so you should only engage a reputable company. You can quickly know a firm’s reputation by checking information transparency on their website, like the address. Customer reviews can also offer helpful details. A reputable firm will be transparent with their loan details and can help you acquire the loan well if you cooperate.
4. Access Qualifications and Prepare Paperwork
Find out the exact requirements for obtaining the loan to prepare well. Usually, the requirements tend to be the same, although some may vary depending on the nature of the lender.
A good credit score is the first important thing your lender may check. An excellent score shows that you repay your loans on time, minimizing the risk of getting the loan. The lender may also require a specific down payment, usually a small percentage of the equipment costs.
Once you access the qualification, prepare the required paperwork, which includes your business plan, financial documents, and tax compliance records. Prepare everything that the lender may need to streamline the loan application process.
5. Apply and Wait For Approval
You can apply for an equipment loan from the lender of your choice once you have met all the requirements. The application process is often straightforward and can happen online. Here are helpful tips when applying for a small business equipment loan.
- Read and understand the terms and conditions well before you sign
- Avoid writing mistakes before minor omissions can result in a loan denial.
- Ask for clarification where you don’t understand
- Fill in the correct details, and only use the proper financial documents in your loan application form.
- Countercheck the interest rates and the loan repayment period to ensure they are the same as you agreed.
- Submit your equipment loan application form in the right channel by dropping it at the office or submitting it online.
Regularly track the progress of your equipment loan application after submission. While the lender may notify you through alerts, you can also see the progress to know if it was approved. The approval should take less than 30 days, although the exact period depends on the lender you are working with. If approved, your equipment lender will purchase and deliver the equipment to your workplace.
Conclusion
An equipment loan is a good idea if your business is still growing and the old ones are obsolete or need frequent repairs. However, finding the ideal lender can be challenging, so you should do enough background checks to pick the best partner.