If you run a construction business and do everything with your bare hands, props to you! If you don’t have superhuman abilities or a lot of time to spare, though, you need equipment. Machines and tools can be expensive, so what’s the best way to acquire them?
Purchasing outright isn’t feasible for everyone. Leasing can be a great way to go, but there’s another option that might suit you best: financing.
What is equipment financing?
Equipment financing means attaining a loan to buy what you need. You can get these loans from an assortment of lenders who require consistent payments (often accompanied by fees and interests), including credit unions, banks, supply companies, manufacturers, and more. How long you have to pay back the loan depends on the individual lender.
What are the cons?
- Down payments: What may be the hardest part for many businesses is the initial down payment, which can get pretty high. If you can’t afford it, you may not be able to begin a steady payment plan in the first place.
- Credit: Equipment financing also usually requires strong credit. If your credit score is low, it can be challenging to convince lenders you are a worthwhile and safe investment. You want the best terms possible, so even if someone still gives you a loan with bad credit, the details may not be the most desirable.
- Updates: You also run the risk of your equipment becoming obsolete. After you’ve finished paying off your equipment, or sometimes even before, there may be new equipment produced that is more efficient than what you’ve invested in. Keep in mind the types of projects you’ll be working on and whether they’ll require constant equipment upgrades to maintain quality.
Are there consistent technological advancements that make you change equipment at the pace Apple makes customers update their iPhones? Do you work on projects that wear down your tools easily? If you believe your equipment should last you a good long while, you may not need as much flexibility.
What are the pros?
- Ownership: There are a lot of upsides to equipment financing. One of the benefits is that you own the equipment immediately, and therefore have more control over what you do with it. Once your loan is paid off, you also have the option to continue using the equipment that is now entirely yours, or you can sell it to buy something new.
- Collateral: While one of the downsides of equipment financing is that you need good credit, it does not need to be as good as if you were applying for a lease. Why is that? It’s because the equipment itself can be used as collateral. Some small business loans are even adjusted based on your experience with the equipment. If you have that experience and a good enough credit score, you should be in decent shape for securing a loan.
- Taxes: Financing equipment is tax-deductible. In fact, “within your first year of ownership, you can receive a deduction of up to $500,000 on new and used equipment.” If you’re curious about the tax advantages, you can learn more here.
- Saving money: You’re going to have to spend some extra money in the long run regardless if you lease or finance. If you lease, you have to make consistent payments for however long your vendor tells you to, which has the potential to exceed the value of the equipment itself. If you finance, APRs usually range from eight to 30 percent. If you plan it right and have steady business, the additional rates associated with financing can be less than those from leasing.
- Getting a loan online: It’s much easier than it used to be to acquire a loan now that many lenders have relocated to the Internet. This makes communication between you and lenders smoother and the overall process more accessible.
Currency Capital, for instance, specializes in equipment loans. We provide higher financing amounts (up to two million dollars) than most other online lenders at lower rates (APRs start at six percent). We host an entire network of lenders, so you’re sure to find someone that sees your potential.
You can get your loan a lot faster, too, thanks to technology that allows borrowers to apply online in minutes. Currency approves most of its applicants within minutes. Even if you don’t qualify for a loan, we let you know quickly, so you aren’t left hanging. If you have any additional questions please contact us today.