Almost every startup business needs equipment. If equipment cannot be purchased outright, the option exists to either lease or purchase equipment. Here’s why equipment loans are extremely beneficial for startup businesses.
Say Goodbye to Collateral
If you get approved for a startup business loan, but the lender believes you are at risk for failure to repay, it is likely you will have to put up collateral. Anything owned by the entrepreneur that the bank could sell can be used as collateral. This includes buildings, accounts, stock, inventory, and equipment.
The cost of the equipment purchased using an equipment loan can be used as collateral. This means you will not have to use anything previously owned as collateral for the loan. If the loan isn’t able to be paid back, the equipment owner simply reclaims the equipment. This significantly lowers the risk involved using collateral.
Ability to Modify or Sell
When only leasing equipment, rarely can modifications or upgrades be made, because at the end of the leasing term, the startup business will not own the equipment. With an equipment loan, the startup business owns the equipment after the payments are finished, and can modify and upgrade at any point along the way. Also, if the equipment later becomes unnecessary, the option to sell it exists once it is owned.
Relatively Easy to Obtain
The approval rate for equipment loans is rather high, since the equipment acts as its own collateral. Also, equipment loans have a shorter approval process than most other loans, and their interest rate can be as low as 8%. According to Lendio, a major online lender, the average equipment loan is paid off in two months.
You Need it for a Reason!
Aside from acting as its own collateral, equipment purchased by loan (hopefully) is crucial to your business! If your productivity will increase as a result of having said equipment, definitely seek an equipment loan. It will increase your profit without affecting your operational capital. Also, the majority of equipment loans do not require there to be a down payment made.
There are only two drawbacks to getting an equipment loan, and one of them should be fairly obvious. The only thing money from an equipment loan can be used for is, indeed, equipment. For any and all other expenses, seek other methods of funding. The not-so-obvious drawback is that you may buy equipment you don’t end up needing. Be sure to do all necessary research and only buy the equipment your startup business simply cannot do without.
Where do I Look?
See our information on Equipment Loans to see the best options for your business.
You might also want to check out the Small Business Association website on loans.
Here are some more Loan Resources that can help your business get the funding it needs.
- U.S.Department of Commerce
- U.S. Small Business Administration
- Small Business Committee
Chris Fuller went to the University of South Florida and has worked in the financial sector for over 20 years. He has extensive experience in all aspects of personal and small business lending, from personal loans, equipment finance to cash flow based solutions for small mom and pop businesses, and large corporations.