The Importance Of Equipment Loans For Startup Businesses

Starting a new business can be very time-consuming and sometimes even challenging especially for those who have never run a business in the past. That’s why it is important to do thorough research on the step-by-step process on how to start up a business successfully.

So, whether you are new to all of this or you are simply looking for another way to increase your net worth, you probably know that you are going to face many challenges from the outset. One of these challenges is money.

Unless you are very lucky and have cash flowing in straight away from either sales or investors, you shouldn’t be surprised if money becomes an issue sooner rather than later. Besides needing it for purchasing or renting an office space and hiring your key staff, you need money to get the latest equipment for your business.

Instead of struggling with your funds, you should take the opportunity and apply for an equipment loan as a startup company. In this post, we are giving you all information regarding equipment financing and why it is important.

What is equipment financing?

Before we go any further, it is crucial that you understand how equipment financing works. As you can guess from the name, equipment financing refers to the funds usually provided by an equipment leasing company used to provide firms with the capital necessary to purchase needed equipment for their business.

Generally speaking, this financing covers anything from vehicles to furniture to large machinery. Therefore, most startup businesses take advantage of the funding programs to buy such equipment at lower interest rates than traditional loan options.

There are two types of equipment financing products that are available to business owners and these are equipment loans and equipment leases.

Equipment loans vs. equipment leasing

Since these two terms are sometimes used interchangeably, it is important to define the difference between the two.

An equipment leasing refers to the coverage of the rental payments a business owner must make for the equipment their business needs. Usually, the borrowing business negotiates specific terms with the leasing company to set up the amount of the monthly rental payments as well as the time length of the lease. This type of equipment financing especially comes in handy for those businesses who wish to utilize the best equipment without spending their own funds.

On the other hand, an equipment loan refers to the amount of money that a business owner borrows from a lender which is specifically used to purchase equipment. This equipment acts as security or collateral for the loan which means that as long as you pay the loan in a timely manner, you can use the equipment indefinitely. This is especially useful for those businesses which don’t have other types of collateral to put up to secure their funding.  

Benefits of equipment loans for startup businesses

Easy application process

As with any other type of financing, rates and terms will vary depending on the qualifications of the applicant as well as the current market conditions. In any case, the most important factors which are taken into consideration in obtaining an equipment loan are your credit score, your business plan and a detailed proposal for future growth.

All in all, the funding speed for “small ticket” equipment purchases can take up to 24 hours, while the average time for “big ticket” equipment purchases can take up to a couple of weeks. Also, the repayment terms may last from several months up to 10 years or more.

Increased working capital

Sometimes it isn’t enough to be consistent with the services you are providing your customers. For that reason, you should always look for other ways to revolve towards your clients’ emerging needs. This is where applying for equipment loans can help you because they make it possible for you to diversify your services.

As a result, applying for an equipment loan will certainly generate more income for your business. Not only will this help you expand your business, but the profits you are going to make will exponentially increase and you will also be able to pay off your equipment loan in no time.

Getting the best up-to-date equipment

New technology is emerging all the time and unfortunately, most startup businesses can’t afford to purchase the best equipment. Therefore, by applying for an equipment loan you will have the opportunity to take advantage of the newest and most effective tools you need for your business.

Even if the equipment you already have is working just fine, the equipment loan you will be applying for can help you purchase an updated version of your older equipment. For that reason, it is important to stay current with the latest technology in order to upgrade your equipment which will also help you grow your business more rapidly.

Tax benefits included

Tax benefits are also part of the equipment loan application. As a business owner, you must make payments to the lender over the course of a certain time period. These payments come in with an interest which can be written off as tax-deductible.

Therefore, according to Section 179 of the IRS Tax Code, the amount you are asking for your equipment purchase can be written off. This means that if you fail to pay the entire amount of your purchase during the year you are filing taxes, you will be able to deduct this amount on the taxes for that year.

Making you better than the competition

Applying for equipment loans can also put you in a better business position against other businesses that provide the same products and services as you. So, if you are planning to diversify your services, you should have the best equipment to do so.

By applying for an equipment loan, you will have better, high-quality tools through which you can offer new and better products and services to your clients. You may even purchase business vehicles that can help you make your business mobile which can also result in expanding it faster than others.

Final thoughts

Fortunately, if you are a startup business owner, you don’t have to worry about all your expenses. Instead, you can apply for equipment loans and expand your company in no time. In order to help you along the way, make sure you refer back to this guide and start your business on the right track.