Often, small businesses are confronted with the need for new equipment. However, purchasing this equipment can be expensive, necessitating the need for equipment financing.
When it comes to financing the equipment for your business, there are two main options to consider: take out an equipment loan or lease the equipment. Here’s a breakdown of each, letting you know which option is a good fit for your business needs.
Various sources can help fund equipment loans, depending on your credit score and your needs. These include commercial banks, alternative lenders, credit unions, and government-backed SBAs.
While equipment loans are available via traditional lenders – banks and credit unions are also available via online lenders and non-bank financing companies – and some online lenders. An SBA 504 loan – for instance, might be a good fit if you’re looking to fund large and expensive equipment.
The interest you’ll pay for an equipment loan is tax-deductible. Different lenders will offer different terms, too. Most lenders, however, will ask for a down payment of about 20% and 10%, for banks and SBAs, respectively.
To apply for this equipment financing option, you’ll need the necessary paperwork, including a business plan, profit and loss statements, and even a copy of your resume.
Leasing comes in handy if the equipment you need gets wear and tear – and needs to be replaced fast. You can obtain a lease without any down payment. Lease payments are also often cheaper than loan payments, and most agreements will need you to buy the equipment once the lease period is over.
Note, however, that a lease can be costlier than a loan. If, for instance, you decide to forego the equipment before the lease period is over, you’ll likely continue making the payments.
While each option comes with benefits, as far as equipment financing goes, you need to weigh both sides and determine which option is suitable for your business needs. If you’re looking to finance any equipment for your small business, contact Alternative Capital Source today.