Equipment financing lets you support up to 100% of the cost
of new or used machinery for your business, like ovens for a kitchen, systems
or company cars and else.
Different Types of Equipment Financing
There are two common ways to finance equipment: through a
loan or a lease. While both achieve the same ends — giving you access to the
equipment needed to run your business — there are plenty of differences between
the two methods.
Here’s a rundown on each:
Equipment Loans
An equipment loan is a loan taken out with the express
purpose of purchasing equipment. Typically, the equipment secures the loan — if
you can no longer afford to pay the loan, the equipment gets collected as
collateral.
These loans are useful for business owners that need a piece
of equipment long-term but can’t afford to make the purchase outright. A
lending institution might agree to extend the majority of the capital so that
you can pay in periodic increments.
There are a few downsides to this arrangement. Most lending
institutions will only agree to pay 80%-90% of the cost, leaving you to cover
the other 10%-20%.
The other downside is that, in the long term, the
arrangement will ultimately cost more than if you had just bought the equipment
outright.
The cost of borrowing changes depending upon the amount
borrowed, interest rate, and term length. For this reason, it’s essential to do
the math before accepting an equipment loan.
Equipment loan interest rates can vary wildly depending on
your lender (8% – 30% is an extremely rough range for what you can expect),
your credit rating, the amount of time you’ve been in business, and any number
of other arcane formulas a specific lender decides to apply to your case. In
most cases, equipment loan interest rates are fixed rather than variable.
Equipment Lease
Leasing equipment is a popular option if you need to trade
out equipment frequently or don’t have the capital to pay the down payment
required for a loan. It’s also more likely to cover additional soft costs
associated with shipping and installing the equipment.
Instead of borrowing money to purchase the equipment, you’re
paying a fee to borrow the equipment. The lessor (the leasing company)
technically maintains ownership of the equipment but lets you use it.
Lease arrangements can vary depending upon your company’s
needs. Most commonly, merchants enter into a lease agreement if they
periodically need to switch out their equipment for an updated version.
If you want to own the equipment, some lessors offer the
option of purchasing the equipment at the end of the term.
Leasing generally carries lower monthly payments than a loan
but might wind up being more expensive in the long run. In part, leases tend to
be more expensive because they carry a larger interest rate than a loan.
There are two major types of leases: capital and operating.
The former functions a bit like a loan alternative and is used to finance the
equipment you want to own long term. The latter is closer to a rental agreement
and, in most cases, you’ll return the equipment to the lessor at the end of the
lease. Both types have a large number of variations. Here are a few common
types you’ll come across:
Fair Market Value (FMV) Lease: With an FMV lease, you
make regular payments while borrowing the equipment for a set term. When the
term is up, you have the option of returning the equipment or purchasing it at
its fair market value.
$1 Buyout Lease: A type of capital lease where you’ll
pay off the cost of the equipment, plus interest, over the course of the lease.
In the end, you’ll owe exactly $1. Once you pay this residual, which is little
more than a formality, you’ll fully own the equipment. Aside from technical
differences, this type of lease is very similar to a loan in terms of structure
and cost.
10% Option Lease: This lease is the same as a $1
lease, but at the end of the term, you have the option of purchasing the
equipment for 10% of its costs. These tend to carry lower monthly payments than
a $1 buyout lease.
A lease tends to be more expensive in practice, though their
(usually fixed) interest rates fall within a similar range to equipment loans.
Depending on the arrangement, you might be able to write off the entirety of
the cost of the lease on your taxes, and leases do not show up on your records
the same way as loans. How leases affect your taxes is too complicated to cover
within the scope of this article, but the type of lease you select will
determine what you can write off and how.
How to Qualify for Equipment Financing?
Although every lender has different specifications, here's
the standard pricing most lenders have.
●
Business must be in business for one year
●
Have a minimum of 600 on your credit score
●
Revenue $100,000 > annually
You can still qualify for the small business equipment
financing if you don't meet these requirements as we have already mentioned
that lenders terms and services vary. Typically getting the equipment loan is
easy as compared to equipment financing.
How to Get Equipment Financing Fast?
You'll find several options while searching for equipment
funding solutions like banks to traditional national lenders and online
lenders. At least a bank must be not your favorable option if you have an
average credit score and business history. Also, you inevitably go for the
option that provides you with full support with its loan repayment terms and
conditions.
Here's BitX Funding
can be the right option for equipment financing as they're experienced in their
game and already helped thousands of small businesses in need. If your business
has the potential to increase, then their great support can help achieve your
dreams.
How Fast Can You Get the Money?
While working with BitX Funding, you can receive money in as
fast as 24 hours after qualifying.
How Much Can You Borrow?
While working with BitX Funding, you don't have to worry
about the loan amount. You can get a minimum of $5k to a maximum of $5M!
Equipment Financing Pricing
You'll experience different
pricing (depending on the lender), but typically they charge you 7% interest
over a 3-year (or 36-month) term.
Standard APR is 12% so that your
$10K piece of equipment will actually cost you $11,957.15, with a monthly
payment of $332.14.
