Irrespective of the size of your business, there are times when it becomes imperative to upgrade, enhance, or replace different types of equipment. This is where equipment loans can give a fresh lease of life to any business owner. Ultimately, these types of loans can prove to be decisive when it comes to the success or failure of your business. While dealing with the subject of equipment loans, one might question: What are the various benefits of equipment loans and how to acquire them? Another question is: What are the different criteria that lenders watch out for before approving the equipment loans? All these questions will be answered in this content piece.
First of all, let’s begin with the definition of an equipment loan. Equipment loans are a type of commercial business loans that help business owners to purchase different types of equipment. Certain small businesses use these types of equipment in different ways like medical & dental machinery, cookware, restaurant Owens, tables & chairs, linens & catering supplies, phone systems, printers, computer monitors, furniture, tools & vehicles for commercial use, specialised machinery, industrial equipment, and much more. All these types of equipment are essential for the healthy functioning of business at optimal levels.
However, what happens when your equipment is old, worn out, and needs to be replaced? In such a situation, you have two options available to you: either purchase a piece of new equipment or lease. Since we are dealing with the topic of equipment loans, we have not discussed equipment leasing in this write-up. Instead, let’s directly discuss different reasons to get a business equipment loan.
- To replace a piece of old worn-out equipment;
- To update older or out of date equipment;
- Add new inventory to the list of existing equipment.
How to get an equipment loan?
Small businesses need to have good credit standing to qualify for equipment loans. Always remember, it is a significant investment for a business to contribute towards growing their revenue. One option, is you can apply for a loan from the bank where you have a business account. If you have strong sales but struggle with little or bad credit, a business cash flow loan can also be a viable option. Remember, getting capital when you need it the most can make the real difference between the success and failure of your business.
Chances are you will fail to qualify for a line of credit for an equipment loan, especially if you have a prior bankruptcy on file, if your business has been incorporated for less than one year. Also, it has been found that traditional banks are often reluctant to extend conventional equipment loans to small businesses with poor or bad credit. Remember, poor or bad credit resonates businesses being viewed as too risky. This makes it very difficult for them to get a traditional bank loan. This happens most of the time with small businesses as they are in dire need of capital for the purchase, replacement, and repairing of outdated or broken equipment. Here, equipment loans can come as a saving grace for such businesses.
Benefits of Equipment Loans
- Swift approval or denial of the loan process;
- Ability to include the monthly payments of equipment loans in the form of tax-deductible;
- Makes it possible to have more cash on hand;
- Gives you flexible payment options;
Step-by-Step Process to Acquire an Equipment Loan
With time as your business grows, it becomes essential to replenish your inventory, and provide daily, monthly, and annual maintenance of key equipment. Let’s look at the steps to acquire an equipment loan.
Ensure that Your Credit is in Good Standing
Have you delayed your credit card payments? Ever defaulted on certain loans? Does your business have a history of bad credit history? Bad credit standing is not great when it comes to getting an equipment loans, and most of the time, lenders will refuse to give you an equipment loan that seems to be too risky. Hence, it becomes essential for you to have a sound credit history. Here, it would help if you prepared yourself. If you can do thorough research and learn about your credit score it can be of great help. A credit score is a brief crux of your credit risk that is evaluated by lenders to access whether to extend credit and determine the interest rate. You can find out more on credit scores by research terms such as “credit score calculator.”
While meeting the prospective lenders, make sure you have a plan in your mind to highlight your business credit history along with your personal history. If you have a credit card debt, a couple of late car instalment payments, or a student loan at default in the past, all these things can delay if not stop the equipment loan approval process. Excellent credit is one of the best ways to get a small business loan. Work thoroughly to clean up your credit reporting errors.
A Strong Business Plan is a Must to Put You in Good Standing
The very first thing that lenders will investigate during the meeting is your business plan to adjudge your business success. So, the very first thing that you to do is define your product or service in detail. Also, do not forget to provide the details about your current cash flow system. So, plan carefully and set a realistic goal for your future business growth. Determine your target market and audience. Next, you need to explain to them how your product or service can be helpful in fulfilling the requirements of your market.
Provide a summary of your business plan in a few paragraphs. Name the beginning of your plan as “Executive Summary.” This way, lenders will get a fair idea about the synopsis of your business. Always keep this in mind: Your business plan does not have to be too long that it covers several pages. However, make sure that it is comprehensive enough to give a fair idea of your business to the lenders. There are several templates for business plans on the internet. Research and select one that is best according to the needs of your business and then execute it as a part of your strategy to acquire equipment loans.
Keep Your Personal Resume Handy
Although you are dealing with lenders, a personal resume is a great way to depict your character traits that support your small business plan. This way, lenders will come to know the person who is running the business. And since you will be the one who is going to repay the loan, it gives them the necessary cushion and trust factor to issue an equipment loan especially for businesses that have a good credit standing in the market.
Cash Flow Statements of Your Business
If you can show that money is coming in and going out steadily, it can go a long way in securing any equipment loan. Always have your cash flow statements in order. This can be done by taking the help of a certified public accountant who can run through your financial records. Make sure that both your personal and business financial statements are in order. This is one of the best indicators of how your business is functioning, which will make lenders consider your equipment loan request.
An equipment loan can be a big decision for small businesses. The reason being, more often than not, the owners find themselves in situations where they are dealing with a cash flow problem. And, when it comes to running your business smoothly, it is imperative to invest in some or another form of equipment. This is where equipment loans can become a lucrative investment. Take the various key points that we have mentioned in this write-up into consideration and chances are, you will be in good standing to acquire equipment loans in a hassle-free manner. Alternatively, if you find lenders are not being sensitive to your loan requirements see how the unlockb2b platform can help.