Equipment keeps businesses competitive. But, equipment purchases can be expensive. Now, more than ever, companies are seeking financing for their equipment purchases. Specialty equipment lenders offer a variety of financing programs designed especially for small businesses. Learn more about what equipment financing is and how it works.
What is Equipment Financing?
Replacing or modernizing equipment helps a business grow, allowing it to generate more revenue. However, purchasing specialty equipment results in large outlays of cash. Equipment financing programs will enable a company to acquire equipment with funds that get repaid over time. The equipment financing agreement, or contract, spells out a predetermined payment and timeline. In the end, it does not include an offer to buy the equipment, allowing the business to own it after it has paid for it.
How Does Equipment Financing Work?
By financing your auto equipment and other equipment, a business owner gets the money to buy new equipment today but repays it with future cash flows. The buyer purchases the equipment from the manufacturer or reseller but repays the lender for the contract’s lifetime. The equipment financing agreement is with a specialty lender who is more familiar with the industry. As a result, “These programs are ideal for small businesses and often are more appealing than conventional loans from the bank because the specialty lenders can be more flexible,” says a representative from an equipment financing company.
Here are five types of equipment financing programs:
1. Private Sales
Sometimes a business needs to purchase equipment from another company that is not the equipment manufacturer or reseller. This type of agreement is known as a private sale. Traditional lenders typically don’t provide financing for private transactions. But private sale programs allow businesses to purchase what they need through private transactions.
2. Seasonal Programs
Some businesses are seasonal in nature. An equipment financing program can offer seasonal options. These match repayments to seasons that generate revenue, limiting repayments in the offseason. This option is another advantage over traditional financing programs through a bank.
3. Low or No Upfront Costs
Down payments and other upfront costs can be difficult for a business, especially when the equipment purchase is unexpected or unplanned. Equipment financing programs look to preserve a business’s cash flow by reducing those upfront costs. This type of agreement allows the company to buy the necessary equipment that will keep their business operating without using as much cash.
4. Deferred Payment Programs
As mentioned, equipment purchases are often investments in business that allow it to expand and grow, creating more revenue. However, there is usually a delay between purchasing the equipment and when it generates more revenue. A deferred payment program accommodates this ramp-up period by structuring payments so that they are reduced during this initial period.
5. New Business Financing
Often it can be difficult for new businesses to get the financing they need to build their business. A new business simply doesn’t have the business and credit history for traditional lenders. New business financing programs allow companies that have been in business for as little as two months to get access to equipment financing.
Choose the Right Equipment Financing Program for You
Specialty equipment financing is designed for small businesses that rely on equipment to maintain and grow their business. There are various programs to help companies to get the equipment they need while preserving much-needed cash. New business financing, deferred payments, seasonal purchases, low upfront costs, and private sale programs all provide flexibility to small businesses. As a business owner, you have the power to choose a program that works best for you.