Choosing the right financing model for your business equipment can provide a solid base for your business expansion plans. You must consider a long-term approach while determining the critical factors involved in acquiring equipment loans. This outlook will free you from the concerns of the timely repayments of the loan. It will also provide you with ample space to make wise and calculated decisions in its utilization.
It all begins with the need for new procurements to either expand or upgrade your business. After you’ve recognized the right equipment at competitive market prices, the next step is to finance it over a carefully thought loan plan.
Whether you own a product line or run a services-based business, acquiring the best equipment is vital to ensure the enterprise’s seamless operations. Allocating the budget for less critical equipment can hurt the cash flow of your business. Hence, financing your optimum needs is essential to keeping things smooth. It also helps you avoid bad debts, especially when you’re overwhelmed with the business’s expansion or up-gradation process.
Most business owners are not fully aware of equipment financing’s advantages, probably because they never hear a lot about it among their business peers. Equipment loans come in several different financial models. So if someone you know has tried an individual approach and it worked for them, it does not necessarily mean that it would suit your business type as well. Therefore, it is essential to thoroughly analyze your equipment needs and then select an appropriate financing plan.
What is an Equipment Loan?
Whether you are the owner of some small venture or want to expand your business operations, you will need to procure new equipment for your business. In a business equipment loan, the equipment itself gets classified as collateral. Thus the possibility to gain one hundred percent financing is always on the cards. However, few institutes or banks declare a 10 – 20 percent down payment necessary. In equipment loans, the repayment periods can be as short as 36 months and could go up to 10 years. Generally, it depends on the terms and the borrowing amount as per your agreement. The borrowing limit also varies and could reach as high as $ 1 million. In contrast, the percentage cap could fall somewhere between 8-30%.
One bright side of equipment loans is that they are released instantly without much paperwork or delay in the process. However, the institute representatives or private lenders for equipment loans are not frequently available all the time. Before you sign an application for equipment loans, you must cross-check the eligibility requirements.
The requirements for Equipment Loan may vary from institute to institute or lender to lender, so you must take care of the necessary prerequisites and standard criteria that include;
- Credit Score
Generally, a good credit score between 550 and 650 is enough to qualify you for an equipment loan. However, a score higher than 660 is preferable and can quickly get you through the initial phase.
- Business Revenues
While getting your loan application approved, it is essential to declare an individual annual income against your business. This declaration amount may vary from lender to lender, but this cannot get overlooked. So you must maintain an adequate record of your business revenue and tax returns.
Prepare a Comprehensive Business Plan
If you’re keen on approaching a private lender for a five-figure amount, then make sure you have prepared a sound business plan. The first thing you must define is a robust financial forecast that gives a comprehensive explanation of the revenue you desire to achieve by including new equipment in your business. Also, remember to include the current cash flow sheet in it and carefully plan realistic goals. The targets you’ve set for your business should not look overly ambitious or far-fetched, even when you have an established and running company.
Give the lenders a well-written executive summary in a few paragraphs that narrates to them a fair story of your business. If you’re finding it challenging to do on your own, find some professional or look up on the internet to start with a template. It is better to give your best in the very first attempt and go fully prepared with all your perquisites intact.
While preparing to apply for the equipment loan, you must weigh a few essential options, as discussed in this article, to ensure that your application gets approved hassle-free. As a business owner, you would not want to immerse yourself in debt-related issues that would adversely affect your business’s growth in the long-run. Therefore, you must take critical factors into account before settling on the amount needed, interest rates, repayment period, lender, etc.