Any business, large or small, will need to upgrade, improve, or replace equipment at some point. But business equipment can be expensive, and even minor expenses like routine maintenance costs can pile up quickly.
Equipment financing allows you to spread out the cost of purchasing or replacing commercial machines. And the good news is that almost any sort of equipment can be funded if used for a commercial purpose.
When to Get Equipment Financing
Financing equipment may be the best option for your small business if:
- You intend to keep the equipment for a long time.
- You constantly use the equipment to generate revenue.
- Your company’s cash flow is strong.
Benefits of Equipment Loans
- Quick approval: Equipment loans are typically approved promptly.
- Tax deductible: Monthly payments on an equipment loan may be deductible as an operating expense. To be sure, check with a business tax attorney or a certified public accountant (CPA).
- More cash in your wallet: Equipment loans ensure that you have more cash on hand in case you need to make other important business purchases.
- Lease to own: You may own the equipment outright, or you can purchase it at the end of the lease, depending on your loan terms.
What Equipment Financing Options Do You Have?
- Term loans: A term loan, like a mortgage or an auto loan, is a traditional business loan that allows you to borrow a lump sum and return it at a set or variable interest rate.
- SBA 7(a) loans: SBA 7(a) loans are term loans that are backed by SBA guarantees and offer small business owners affordable rates for equipment and other business purchases.
- Equipment loans: A business equipment loan is designed exclusively for getting equipment. It functions like a lease, in which you return the equipment at the end of the term or renew the lease to keep it longer. This option may enable you to purchase the equipment at the end of the term.
- Loans under SBA 504: Fixed-rate loans of up to $5 million are available through the Small Business Administration’s 504 loan program for long-term assets such as buildings, equipment, or facility renovations.
- Small business credit card: When compared to equipment loans or leases, business credit cards have a few advantages. Card applications take less time than loan applications, and some cards offer 0% APR and continuing cashback rewards, miles, or points.
- Small business line of credit: A company line of credit allows you to borrow money on an as-needed basis rather than as one big payment. Like a credit card, you can borrow up to your credit limit, repay, and borrow again. Only the amount you borrow will be charged interest.
Any of these options can be a valuable lifeline for small business owners. If you’re looking to grow your small business, equipment financing may be the next step to keep up as its needs evolve.