When you’re in business, you need the right tools to be successful. The truth is that these tools can oftentimes be fairly expensive. If you need expensive equipment in order to start or run your business, you may want to look into equipment financing.

What Is Equipment Financing?

Before we can get into the pros and cons of using this type of financing, it’s important to understand what equipment financing is. Essentially, equipment financing is a type of loan for businesses that is meant for the sole purpose of buying equipment. There are lots of different types of equipment that businesses use including technology, software, vehicles and heavy machinery.

When you utilize equipment loans, you will pay them back over time, including interest. In this sort of setup, the equipment itself serves as the collateral so it’s oftentimes easier to apply and get qualified for a loan. This makes financing an attractive option for both small businesses and new businesses that need to get going quickly to start making revenue.

What Are The Cons Of Utilizing Equipment Financing?

While there are many advantages to this type of financing, we’ll get the potential cons out of the way first.

• Equipment can be outdated by the time your loan is repaid in full. If you’re in a business that requires the latest and greatest technology and equipment in order to be competitive, you may want to look into something like equipment leasing where you can upgrade to new equipment when your original agreement ends.
• Equipment financing can require a downpayment upfront. When pulling out a loan, a downpayment is a pretty common part of the terms. Depending on the agreement, you may need to plan to put down 10-25% of the purchase price in order to secure the loan. The positive side is that a higher downpayment can help to reduce your interest rate.

What Are The Pros of Utilizing Equipment Financing?

Lastly, we’ll go over the main advantages of this type of financing. They include the following:

• You can get immediate access to the equipment you need. While other types of small business loans can take quite a while to fund, equipment loans typically fund fairly fast. As long as you go into the application process prepared, you can usually finish the process in a matter of days.
• Interest rates can be more affordable than other types of business loans. You’ll see rates in ranges of 4-40% in most instances, but it will vary depending on your credit, downpayment, etc. Overall, though, you should see lower rates that are generally affordable.