Produce with
Equipment Loans
High value equipment is often the key to revenue generation, but how can you access the equipment more efficiently than with dealer financing? Private lenders often offer better rates than dealers who often partner with lenders operating at the lowest common denominator. For many operators, leasing offers excellent terms as well, maintaining an open door to upgrade technology in industries with high obsolescence.
OVERVIEW
There’s never a right time for equipment to break down. For companies that rely on their equipment to keep business moving, costly repairs can slow everything down or stop production completely. Equipment loans are an easy way to get things moving again. Finance new equipment, integrate it into production, and make sure it’s up and running before selling your existing tools, technology and equipment.
Ownership comes with its ups and downs. It can be an asset for the company, but the company also has to cover upgrades and repairs. If the useful life of the equipment won’t outlast a loan period, it doesn’t make much sense to finance a purchase. In this instance, leasing may be a better option.
What qualifies as “equipment” is variable. If your company doesn’t operate heavy machinery, you can still take advantage of an equipment loan. Often, high-end computer software, telecommunications, and fleet vehicles will qualify. Commercial ovens, printing presses, and freezers are also considered.
Access equity locked up in your current equipment with a equipment hard money loan or sale leaseback. In both instances you’ll get a lump sum for the sale of the equipment to the lender while retaining use of the equipment while making monthly payments. The primary difference is that with an equipment hard money loan you’ll make interest only payments during the term and pay a lump sum to cover the balance at the end of the loan. With a sale leaseback, you’ll sell the equipment outright and sign a lease to continue using the equipment for a term established in the contract.
If you already have an equipment loan, you may be able to free up working capital by refinancing. Lenders often lower interest rates on equipment loans so they can attract new customers. You can take advantage of these lower rates by using a new loan to pay off your current debt.
LOAN HIGHLIGHTS
PROS
- In some cases, the equipment can be financed even if there’s already a loan in place.
- Borrowers don’t lose any additional company assets should they default on the loan.
- Hard money loans typically cover 75% of the equipment value.
- Even equipment that’s already been financed can be used to generate cash.
CONS
- Equipment must be built to last or you could end up paying on the loan for longer than you own the equipment.
- Interest rates can be higher than traditional loans.
- Default on the loan will adversely affect your business credit score.