Equipment Financing

Are you a small business owner who is in need of financing to purchase or lease equipment essential for the operation of your small business? Do you have a bad or no credit score or history and have been turned down by banks and other financial institutions for a loan for your equipment purchase or leasing needs? Equipment financing can be had on terms that are more favorable than a payday loan or a cash advance from a corporate or personal credit card despite what you may have been told or what your experience may have been otherwise.

What is an Equipment Financing Loan?

Equipment financing is an umbrella term for a loan or financing which provides a small business owner with the funds for leasing or buying the necessary equipment to operate their business. It does not refer to financing for purchasing a property or building in which to operate a business. (This property or building is known as the physical plant or property and would typically require a mortgage or another type of loan rather than an equipment financing or leasing loan.) Instead, equipment financing deals with the actual tools of the trade or the equipment necessary to run or operate the business rather than the physical space or the land on which the business is located.

For example, if your small business is a restaurant, you likely will need industrial refrigerators or ovens to operate your business. If your small business is a clothing store, you will need payment processing equipment as well as computer systems to track inventory, sales, and other functions. In either case, your small business simply cannot function without this necessary equipment. However, as a small business owner, you may have little to no credit history or you may have little in the way of assets to fund your purchase or rental of business equipment. But you likely do not want to turn to expensive payday loans or cash advances from credit cards due to the sky high fees and exorbitant rates associated with those types of financing. Accordingly, a solution for you would be an equipment lease or financing loan.

What Different Types of Equipment Financing Loans Are There?

The typical small business equipment financing deal can take several different forms, either allowing the small business owner to purchase equipment for his or her business outright or to lease such a equipment from a third party. In the equipment leasing context, a small business owner can use the proceeds of an equipment financing loan to lease the necessary equipment from a supplier or other third party. In the case of a brand new restaurant whose proprietor has few assets, an equipment financing loan will enable to restaurant owner to either lease or buy the required refrigerators, ovens, and other necessary equipment for her business. In the case of a restaurant, which has high fixed costs, equipment is typically leased due to the high acquisition costs for new equipment. Typically, therefore, the restaurant owner will use the proceeds of an equipment financing loan to lease the equipment necessary for the operation of his or her restaurant from a third party. However, with less capital intensive businesses such as a clothing store, a small business owner may choose to use the proceeds of an equipment financing loan to purchase the equipment outright rather than leasing it from a third party.

Equipment Financing and Leasing Deals for Small Businesses Exist Out There, They Just May Not Come From Mainstream Banks

Unfortunately, as many potential small business borrowers know, most banks and commercial lenders are notoriously shy about lending to small businesses, particularly for borrowers with bad or no credit or assets. In addition, banks and other traditional financial institutions may require a small business owner in need of equipment financing to fill out reams of paperwork and demand all sort of extraneous information only to deny the small business owner’s request for the funds for equipment financing. However, there are many lenders out there that are willing and able to offer equipment or leasing services to small businesses.

Takeaways

  • Equipment financing or leasing loans are used for the purposes of buying or purchasing equipment necessary to operate your small business. These loans would constitute financing to purchase the tools of the trade rather than the building or property in which your business will operate.
  • Equipment financing loans typically take the form of either an equipment lease, where the borrowed monies are used to lease equipment from a third party, or to buy the equipment outright.
  • Even though it may seem that mainstream lenders like banks are unwilling to extend financing for equipment financing or leasing to small business owners, there are many other types of lenders that are willing to make such financing transactions possible.

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