Commercial Equipment Financing: Funding Your Business Needs
Commercial equipment financing is a type of loan that helps businesses obtain the equipment and machinery they need to operate and expand. It is a financing solution specifically designed for businesses that cannot or do not want to pay for equipment upfront. This funding is essential to the growth and success of many different industries, including healthcare, construction, transportation, manufacturing, and agriculture.
What is Commercial Equipment Financing?
To be eligible for commercial equipment financing, you must be a business owner and require a piece of equipment for your operations. The creditworthiness of the applicant is also evaluated concerning the loan application. You will need to show proof of your business's financial standing and provide information about the equipment you need. You must demonstrate your ability to repay the loan, which typically involves examining your credit score, business credit history, financial statements, and cash flow.
How Does Equipment Financing Work and How is it Different from a Lease?
Equipment financing is like other financing mechanisms, you'll receive money to purchase the equipment and pay it back in installments, plus interest. This kind of financing is collateralized, meaning the equipment itself serves as collateral for the loan. Once the loan is paid off, you own the equipment outright.
Unlike leasing the equipment, financing allows you to maintain ownership of the equipment rather than renting or leasing and paying monthly. As the business owner, you're responsible for the maintenance and repair of the equipment during the loan term. At the end of the term, you can choose to continue using the equipment or upgrade it for a newer model.
What is The Difference Between A Traditional Bank Loan and an Equipment Financing Loan?
Traditional bank loans can be difficult to obtain for small businesses and start-ups and the interest rates can be high. In contrast, commercial equipment financing is specifically intended to help businesses secure the equipment needed to operate and grow, and the repayment terms and interest rates can be more manageable.
Equipment financing loans can be accessed more easily than traditional bank loans, with fewer requirements for collateral and security generally required. Equipment financing companies are interested in the value of the equipment they are financing and how it will be used instead of solely reliant upon your credit score.
What Documentation and Information are Required to Apply for an Equipment Financing Loan?
To apply for an equipment financing loan, the first step is to prepare the necessary documentation and information. Though individual loan requirements can vary, these are the most general items needed for equipment financing:
- Business Information: The legal business name, address, incorporation documentation, EIN, and number of employees.
- Financial Statements: Business financial data for the current year, including profit and loss statements, balance sheets and tax returns.
- Equipment Information: A detailed description of the equipment you need, including make and model, its age, condition, and purchase price.
- Personal Financial Statements and Credit Information: We will need the borrower's personal financial statements, credit reports, and personal guarantees.
When you have these basic items ready, you can fill out an application and submit it for review. After a review, an offer will go forward detailing the terms, interest rates, and financing options that best ensure your business's needs. With the right financing, assets can be acquired, and your business operations can be secured.
