Does your business require specialized, expensive equipment for its operations? While having the equipment is essential to running your business, you may be trying to determine if it makes more sense to lease or buy your equipment. Whether it’s heavy equipment, computers or other IT equipment, specialized machinery, or something else, the lease or purchase debate is fairly common.
Each option has pros and cons, and it’s important to consider what is right for your business. This article explores the benefits and downsides of buying or leasing to help you determine what is ultimately best for you.
What are Business Equipment Loans?
Business equipment loans are when a lender gives you capital to cover the value of the equipment you’re looking to buy. You don’t need to offer any personal guarantee on the loan because the equipment itself is the collateral. It can be seized by the lender if you default on your payments. Depending on the equipment and lender in question, there may also be so-called “soft costs,” which are other fees associated with equipment, including delivery, installation, warranty, etc. Quite simply, it’s a loan to purchase equipment your business may need.
Leasing Equipment
Leasing equipment is similar to renting it. You aren’t buying the equipment outright, but you are making payments to use it for a specific period. Leasing can be beneficial if you have limited capital upfront or need equipment that will likely need to be upgraded in a few years. This is the main benefit–flexibility. You will not be stuck with equipment that will go obsolete in a few years; you can even terminate the lease early in some cases. That freedom and flexibility come at a cost, though. More often than not, the regular lease payments add up to be more than the cost of buying the equipment outright.
Buying Equipment
When you buy equipment, you own it. Owning equipment adds value to your business, especially if it has a long lifespan. In some cases, you may also get special incentives or tax breaks, like Section 179 and Section 168(k) of the IRS Tax Code, when you buy upfront. However, buying equipment outright often requires more capital upfront, depending on how you finance it. Unless you have a maintenance or upgrade agreement, you’re stuck with the product you purchased until you decide to sell it yourself. If you’re confident that the equipment you’re interested in will be what you need for several years down the line, buying it will cost more upfront, but it can be more economical in the long run.
How to Get A Business Equipment Loan
If you’re leaning more toward the buying route but are unsure how you’ll come up with the money to buy the equipment upfront, you might consider a business equipment loan. If you’d rather own your equipment and save money by not leasing, there are ways to get the funding. Read on to learn how you can secure a business equipment loan and start putting the capital to work growing your business.
It can depend on the cost and type of equipment in question, but a business equipment loan often requires very good to excellent credit. Small businesses seeking a business equipment loan should also have outstanding sales and cash flow. Traditional banks may not want to take the chance to lend to a small business, but some online lenders, like Fundid Capital, powered by Lendflow, have more favorable options.
The process will be fairly similar when seeking a business equipment loan, whether from a traditional bank or an online lender. You’ll need one or multiple forms of identification, as well as your business finances and credit statements.
Where Can I Get a Business Equipment Loan?
Traditional Lenders
These are the banks that most are familiar with, the big finance and banking companies such as JP Morgan, Citi, Wells Fargo, etc. Traditional banks like to see strong sales and cash flow; the stronger they are, the less of a risk your business will be, and the more likely they’ll be willing to lend to you. Each bank may have varying preferences in cash flow, structures, and loan rates.
Nontraditional Lenders
There is a new wave of so-called disruptive “fintech” companies appealing to millennials and younger businesses, like SoFi, Kabbage, Fundid Capital Marketplace, etc. In principle, they’re like mainstream banking companies–they’re qualified to lend and loan money and set up business accounts and credit cards. However, they’re catering to younger people and newer businesses, who may not yet have the finances to cover a loan that traditional banks prefer.
These nontraditional lenders are more likely to take chances with customers that conventional banks deem “risky.” They may be more lenient with penalties or rates than traditional banking institutions; if a bank previously denied you, a newer, nontraditional option may be willing to loan you money.
Fundid Capital Marketplace
Fundid is a business finance platform built to help businesses grow by making access to capital easier. Many companies with under ten employees are denied much-needed loans by traditional big banks, and we want to change that. We are partnering with lenders who are looking to serve businesses like yours. Find your next business lender today through our Capital Marketplace.
Find Your Next Lender to Help you with your Business Equipment Loan
Equipment loans are essential to scaling a business, and we want to help your business reach its growth potential. Access to capital, especially when purchasing equipment, is one of the biggest obstacles for any business looking to expand.
We understand how vital capital can be in the early stages of growth and want to support others with their business goals. We know how frustrating not having access to capital can be, whether for an equipment loan or to cover employee payroll. Our mission is to help eliminate that obstacle to small businesses the best we can.
If you need funding to grow your business, search the Fundid Capital Marketplace to find a lender who can help your business grow.
About Fundid
Fundid is redefining how small businesses understand and access capital.
