Many business owners turn to a loan when purchasing equipment. In fact, there are several reasons to choose equipment financing even if you have enough money in savings to buy the equipment outright. For one thing, you may not want to use up all of your valuable capital. With financing, you can make comfortable monthly payments and keep the money in your bank account for business emergencies.
How Conventional Equipment Financing Works
The main way to buy equipment is to apply for a long-term bank loan. You have full ownership after making payments. This is an ideal method of securing equipment with low-interest rates and long repayment terms:
- Heavy machinery
- Stainless-steel food prep surfaces
- High-capacity cooking equipment
- Production equipment
- Drills, presses, and specialized work tools
Restaurants, construction companies, manufacturing businesses, and other companies often use conventional financing for equipment that they’re going to use for a long time. What if you need equipment that you’re going to upgrade often? In that case, an alternative financing option may be a better choice.
Four Alternative Equipment Financing Options
These options for getting equipment can offer amazing flexibility and easier approval:
1. SBA Loans
If you run a qualified small business, SBA loans can be one of the best ways to buy equipment. They offer amazing interest rates and very comfortable terms. This should generally be the first place small business owners look for financing, though it can take a while to get approved.
2. Equipment Leases
With leasing, you make payments, but it’s generally just to use the equipment, not purchase it. Leases are flexible, and they usually offer lower monthly payments. It can be very easy to trade-in or upgrade equipment with a lease. This option doesn’t count as a line of credit, so you’re free to apply for other loans for your business.
3. Bridge Loans
Bridge loans and other short-term loans offer a trade-off of convenience versus cost. They carry higher interest, but approval is usually faster and easier. Businesses with poor credit may find it easier to qualify for this type of financing.
4. P2P Financing
A final option for buying equipment is to approach friends and family members. This can save you a lot of money on interest, especially if the individual is interested in your business success. You can even create an agreement to specific your repayment obligations.
The best choice of financing depends on your long-term goals, available capital, cash flow, and current needs. You may need to get equipment ASAP to serve your customers or grow your business startup. In this case, alternative financing can be a great solution.