An insider’s guide to equipment financing and leasing. Equipment financing and leasing is the process of acquiring business equipment by small business owners using funds that have been provided by a financial institution. But wait, what qualifies as business equipment? Business equipment, for the sake of equipment financing is any liquid and palpable asset, not including property (or building on property), utilized for the successful day to day operations of a small business.
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What types of equipment qualify for financing?
Almost any type of equipment utilized for day to day business and operations can qualify for financing. Equipment varies from furniture necessary to fill an office to a walk-in freezer for kegs at a bar. Doctors finance many types of equipment and most of the x-ray machines, MRI machines, and CT scanners found in imaging centers have all been financed. Most small business owners cannot afford the necessary equipment to complete the job. Leasing opportunities are also available, but every small business owner’s dream is to own all their own necessary equipment.
Why should I utilize equipment financing and leasing?
Many small business owners choose financing over buying their heavy equipment outright. Choosing equipment financing provides much more payment flexibility in the long run when purchasing equipment that can cost from $10,000 to $1,000,000 (oil rigs etc.). It is assumed that the asset being purchased will have a significant life of use, in which it provides a large yield in return, paying itself off in the process.
Another reason for turning to equipment financing and leasing may be due to unfortunate circumstance. If a restaurant’s walk-in freezer or pizza ovens break, no matter what, these pieces of equipment are vital for day to day operations. Equipment financing can always be relied on and is recommended if you are in a qualifying industry.
Equipment loans, just split into two.
There are two different financing opportunities correlated with equipment loans.
As previously recommended, please do your own research before initiating any type of financial decision and gather all details on the market so that you can make responsible financial decisions. Here are the major details we feel you should know about the two different sides to equipment loans to provide a little help to you before you make this huge business decision. As per the U.S. Economic Outlook 2018 Equipment Leasing & Finance U.S. Economic Outlook, “Equipment and software investment growth is expected to strengthen in 2018 after expanding at a solid pace in 2017. A strong labor market, elevated business confidence levels, and healthy credit conditions should build on the economic momentum experienced in 2017, while tax cuts and a firming oil sector will likely offer additional boosts to growth. However, a rising interest rate environment could weaken lending activity as the year progresses. Overall, investment in most equipment verticals should remain solid in 2018.”
Equipment financing is when a small business owner receives a loan for the purchase of equipment necessary for day to day operations of their business. These loans are provided to prospective clients who have sufficient personal and business credit profiles, and sufficient use for the equipment. If you are going to utilize equipment financing make sure that the ROI pays off the initial investment in a relatively quick time period so that you may experience long term profits and decrease your overall holdback percentage.
holdback percentage: debt to income ratio
If you are in a situation where you already own other pieces of equipment, and the assessed value is sufficient, some lenders allow the use of collateral to finance the loan. If the value of the equipment you are purchasing is on the lower scale, and collateralization is not necessary, equipment loans have been observed to be offered in lower amounts than offered by most traditional banking institutions. This is what makes equipment financing an extremely vital tool for small business success.
Term lengths for equipment loans differ amongst the major providers of equipment financing and leasing. Equipment loan term structures generally stretch up to 7 years with the cost of the loan varying dependant on a multitude of different factors. Some factors include, but are not limited to, personal and business credit profiles, age of credit history, industry, use of funds, time in business, and state of incorporation.
We suggest, to all clients, to seek options from their local credit unions first. Become a member, apply and check out the amazing equipment loans they offer. Second suggestion, major banking institutions. All major bank institutions like Wells Fargo, Bank of America, and Chase all offer equipment financing and leasing options to qualifying small business owners. These sources provide the most generous terms but are much stricter in their qualifying procedures.
An online lending source, like AMP Advance, offers equipment financing and leasing opportunities to facilitate small business owners in increasing their monthly revenues. Our clients purchase the equipment that they feel is most necessary to increase sales while also saving themselves important capital through tax deductible write offs made for all payments on the loan. Unlike traditional financial institutions, AMP Advance provides responses within minutes and can have the funds in your account in as soon as 24 hours. AMP works as fast as you let them. All small business owners know that time is money and we’re not in the business to waste yours or ours- money that is.
Traditional down payment amounts ranging up to as high as 20% of the loan upfront are requested in order to reduce overall risk of the financial move. Compared to an SBA 504 loan which some small businesses use for similar reasons, only 10 percent is required as a down payment but the term and overall rate are much more in your favor but qualifying is more difficult.
An equipment lease, in layman’s terms, is a rental agreement in which the owner of the equipment allows the use and possession of the equipment in agreement that the small business owner pays back a set amount, with an agreed upon payment structure for the duration of needed use to the business. For the sake of leasing, the lessor is the owner and the lessee is the small business owner using the equipment. The lessor is the individual who has paid for the asset and is willing to lend it out for a set fee which sometimes can be lower than any loan. Most lenders on the market offer equipment leases with fixed interest rates and terms, and these details are directly correlated with your business and personal credit profiles. Once again, make sure to conduct your own research because many companies offer the outright purchase at the end of the lease at a very fair price.
AMP Advance is a Miami based industry leading direct funding source out of Coconut Grove, Florida. We help those who are in need of small business financing by providing web based financing options & funding solutions. Our solutions assist small business owners find matching opportunities while assisting small business owners improve their overall financial situations. AMP Advance provides small business loans, business lines of credit, accounts receivable financing, equipment financing, unsecured business loans, and revenue based loans to millions of small business owners nationwide.