How the Equipment Financing Process Works

Equipment financing is a broad term that includes several different types of loans and alternative lending options. What they all have in common is their purpose: to provide your business with the capital needed to buy the right equipment. Equipment is the lifeblood of your company, since it streamlines operations, saves time, drives production and boosts profits.

There are many equipment needs that businesses face. Some of them are small, such as printers and computer systems. Other expenses are very large, including construction machinery and transportation vehicles worth hundreds of thousands of dollars. There are also equipment costs in the middle, such as HVAC units, display shelving and other warehouse storage needs.

Can equipment financing cover all of these business essentials? Absolutely. The right financing gives you money to make the purchases needed to help your business to expand and grow. For example, a manufacturer that needs to send out a lot of finished products can benefit significantly from buying a forklift to load trucks much faster. Businesses that have a lot of e-commerce sales need state-of-the-art IT systems and servers to stay ahead.

Types of Financing for Business Equipment

There are three main types of financing to purchase equipment: long-term equipment loans, equipment leases, and invoice factoring. Each option has specific characteristics:

  • Long-term equipment loans: These offer excellent interest rates and let you pay back the loan over a long time. The equipment is usually used as collateral, especially for expensive items. That way it’s easier to qualify for a loan.
  • Equipment leasing: This option is like choosing to make monthly payments on a car. The bank owns your equipment and leases it to you for a certain amount of time. The advantage of this option is you can trade-in older equipment for brand new models, which is great for keeping up with modern technology.
  • Invoice factoring: This type of financing lets you “sell” unpaid invoices to the lender in exchange for most of its value immediately. Instead of having to wait 30 or 60 days for your customers to pay, the lender gives you the money right away. This is a huge help for taking care of purchases and emergencies, and you don’t have any debt to worry about afterward.

Invoice factoring is great in the case of smaller purchases, since you may not want to wait for a long-term loan to get approved. If you have to buy a new computer system, for example, you probably want to take advantage of deals to get a good price. With equipment financing, you can get capital and buy the things your company needs.

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