How to Get Business Equipment Loans: Your Step-By-Step Guide
Starting a business requires a substantial investment. Business equipment loans can help offset the risk of acquiring new equipment.
Getting a business up off the ground is no small feat and involves much more than just securing initial funding. You will need to invest your revenue, cut your losses, cover your costs, all while retaining some profit.
Investing and reinvesting capital into the business is important, but doing so without being mindful of the limitations of your working capital can leave you in a dire spot when your cash flow dries up, especially if you rely on seasonal highs. At some point, you will have to spend money you don’t have – and you will have to do so quite often. It’s for this very reason that every successful business – from a small corner store to an international conglomerate – has an even more successful relationship with a trusted vendor or lender.
When the time comes to make serious financial investments – whether it’s to repair broken equipment, lease property, or buy new equipment – you will want to save your capital and consider a business equipment loan.
Why Choose Business Equipment Loans?
Why opt for a business equipment loan over a regular bank loan? One word: availability.
Bank loans are not necessarily easy to acquire. Banks can be quite selective to whom they lend money, and small businesses may have limited opportunities to call upon a bank for the financial help they might need. Even if a bank loan is an option you can explore, you might not need to. This gives you the opportunity to utilize a bank loan for something else.
Business equipment loans and equipment leasing services are direct vendor-business relationships or specialized lender-business relationships, where the money lent is explicitly used for business equipment, rather than being open-ended. The reason it’s easier to secure funding for business equipment is because the equipment itself serves as a straightforward collateral in the equation.
Business equipment loans can be easier to apply for than a regular bank loan, all while letting you preserve the option to get help from a bank when your cash flow dries up or when your working capital seems dangerously low.
Business equipment loans are just one way of getting access to the equipment you need, of course. You could also consider leasing the business equipment you need.
The main difference between leasing or financing equipment and securing business equipment loans is whether you plan to own the equipment after the end of your payment term. Leases can give you access to expensive equipment for a time when you might not be able to afford buying it outright, but you would have to renegotiate a new lease periodically. A loan might be ideal when you know a piece of equipment is going to last you a decade or two, easily.
When Do You Need Business Equipment Loans?
A business equipment loan is the ideal option when:
- You can’t afford to buy the equipment outright.
- The equipment you can afford simply won’t cut it.
- Repairs aren’t enough to get your equipment back up and running.
- You typically use equipment for longer than a few years or wear it down to the point where leasing isn’t an option.
Some of the other critical benefits of opting for a business equipment loan over other financing or acquisition options include:
- Your equipment loan payments are tax-deductible.
- It’s usually easier and faster to seek approval for an equipment loan than a regular cash loan.
- Depending on the lender you are working with, you can negotiate the terms of the loan and get a flexible payment schedule before penalties set in.
- While a loan will end up costing you more in the long-term, that extra cost is easily compensated by the fact that you have much more cash in hand when you decide to buy equipment via loan than paying for it outright – even when you can afford to.
Whether or not you need a business equipment loan right now, it helps to be equipped with the knowledge of how to get one.
Setting Up a Business Equipment Loan
Business equipment loans are given out by lenders, and lenders can be quite choosy about whom they give their money to. They expect to see a return on their investment, regardless of whether they’re giving you cash to buy equipment or are providing you with the equipment itself.
To that end, lenders will have a lot of questions, and you will need to provide the answers. You can accomplish this in four simple steps.
Step One: Credit
Your business credit score (and personal credit score) may be the single most important numbers that help decide whether your business is qualified to receive a loan or not. The qualifying credit score depends entirely on what kind of equipment you need – and how much money you expect the lender to bring to the agreement.
A credit score is a reflection of a business’s ability to pay its dues, and a poor credit score simultaneously leaves a poor reflection. Before you can qualify of your loan, deal with your bad credit. Check your business credit score via premium reporting agencies, or free tools like FICO.com.
Step Two: Have a Plan
We’re talking about a business plan, of course. A credit score gives a brief glimpse of your repayment capabilities, but young businesses in particular can have pretty decent credit and may still fail.
Having a robust business plan with plenty of balance sheets, a strong cash flow, and promising market research can go a long way towards convincing a lender that you’re worth your weight in salt, and then some. Lenders will want to see proof that your business has enough money coming in and going out on a regular basis.
Step Three: Gather Your Paperwork
Your personal paperwork can have a serious impact on whether your business will be approved for a loan, especially if you are running a sole proprietorship.
Some of the information you may want to keep on hand to help convince lenders to include a personal resume (if you are the sole proprietor or are in charge of the finances for the business), personal debts and credit score, and management history.
Step Four: Exploring Options
After gathering all your information, it’s time to explore your options. Get in touch with a few different lenders, see what they’re willing to offer, and make the best decision for your company.
Why Work with Us?
When looking for a lender to give a business equipment loan, it pays to keep an eye out for a few qualifying factors: reputability, variety, and speed. At Heartland Financial Group Inc., we offer all three. Get approved for a loan or leasing option via our online lending questionnaire today.