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Financing is the biggest problem for startups. Aspiring entrepreneurs are wary of going all-in on a business venture using their own money since they aren’t sure how successful their business will be. Many first-time entrepreneurs shop around for startup loans to get their businesses off the ground. One financing solution worth considering is an equipment loan.
How does equipment financing work?
Equipment loans for startup businesses help the borrower acquire physical assets for the company. It can range from ovens and stoves in a restaurant, computers, and servers in an IT firm, or heavy machinery for a construction company. Equipment for commercial operations can get extremely expensive. The cost of acquiring physical assets might exceed your separate startup loan amount, so many consider taking out an equipment loan.
The lender usually places a lien on the equipment you buy, allowing it to be collateral for your loan. This gives the lender the right to repossess and resell the equipment if you default on your loan.
Equipment loans vs. equipment leasing.
Apart from loans, another form of equipment financing is leasing. Equipment loans often include monthly payments over a long, fixed term. In most cases, you’ll need to make a down payment of at least 15 percent on the equipment.
On the other hand, equipment leases let you rent a physical asset from a vendor. The cost of the equipment plus interest fees are spread out during your lease term. However, you don’t own the equipment at the end of your lease term, unlike if you get a loan. Your vendor might allow you to buy the piece once your lease agreement ends.
Between the two financing options, an equipment loan is the wiser long-term choice. Your monthly payments eventually let you own the equipment, unlike in a lease where you’re only paying for the right to use the asset. Below are additional advantages of choosing this option.
Flexible payment options
Most equipment financing lenders give you the option to pay monthly, quarterly, or annually. This flexible schedule lets you align your payments with the projected revenues of your startup.
No additional collateral
You won’t be required to put up a personal asset as collateral since a lien is already placed on the equipment you buy. It minimizes the risk involved in taking out an equipment loan.
Resale value of equipment
The equipment is yours once you finish paying off what you borrow. But what happens if your business tanks? You can sell your commercial equipment at the resale value or put it up for lease. Either way, you still make some profit from the equipment. Make sure you get an equipment loan from a reputable lender. Shop around for the best loan with terms that meet your goals and needs.
Jumpstart your business with Probably Funding.
Probably Funding gives small businesses the financial support they need through startup funding and equipment financing options. We offer quick business loans and alternative business funding solutions, giving you the money you need for equipment, payroll, new developments, marketing, expansions, and more.
Disclaimer.
This Probably Funding blog post is purely educational and features general information and opinions. Nothing contained herein is intended to constitute advice or recommendations and should not be treated as such.