Whether you’ve used financing to acquire equipment before or you’re just starting to consider it, you’re bound to have a few questions along the way. Instead of scouring the internet trying to find a source of information, check out the experts’ answers to these top equipment financing questions.
Q: What’s the difference between financing and leasing?
A: Financing and leasing are similar in some ways, but quite distinct in others. Though both options help you to break down the cost of equipment into manageable amounts, they differ in structure. When you use financing to acquire equipment, you maintain ownership during and after the plan. With leasing, your lender technically has ownership of the equipment and you’re paying for use of it. This does not necessarily mean the lender can take back the equipment at the end of the lease. Most often, the equipment is on a lease-to-own plan that would allow you to take ownership of the equipment of the lease. Both options have advantages and a knowledgeable financing consultant will be able to help you find the best fit for your company.
Q: Do I need perfect credit?
A: No! Getting financing without perfect credit isn’t impossible when you work with an understanding lender. Banks or other non-specialized lenders may be unwilling to work with anything other than A and B credit, but flexible lenders with expertise in your industry know that perfect credit really isn’t that common, so they’ll be more likely to work with A,B,C, and even D credit scores. The trick is to find a lender that understands your industry and that the real world makes A+ credit almost impossible.
Q: How hard is it to finance used equipment?
A: Once again, finding the right lender is the key factor here. Sure, a lot of lenders prefer not to work with used equipment, but there are certainly lenders out there that are happy to help you get the used equipment your business needs. To make sure you have the easiest time possible getting your used equipment financed, you’ll want to look for equipment in good working order that will keep its value for years to come.
Though it can take a little longer to get financing for used equipment, it’s worth it. It’ll depreciate in value less and help your business profit without sinking tons of money into purchasing it.
Q: How long does a lease last?
A: The short answer: 24-60 months.
The longer answer: it depends on a lot of factors, like your ideal monthly payment, the overall cost of equipment, and any special financing terms you’d like. A consultant will work with you to find the plan that works best, but be prepared for the lease to last at least 36 months. If you want to pay less each month, some lenders will let you stretch the plan to 72 months or more. On the other hand, if you would like to pay off your lease as soon as possible, some lenders will shorten the lease to 24 months and increase the monthly payment.
Q: What is flexible financing?
A: You’ve probably seen the phrase “flexible financing” floating around while you research equipment financing, but still aren’t exactly sure what it means. Basically, flexible financing refers to plans that break from the typical structure of paying the same monthly payment every month. This can mean you don’t make any payments for the first 3-6 months (deferred payments), you can skip certain months’ payments (skip plan), or even start with a lower monthly payment and increase as the plan goes on (step-up payment plan). Each option has its advantages and a financing consultant can help you figure out what works best.
If flexible financing is something you need out of your plan, make sure your lender has experience with that type of plan and with your industry. It’ll make the process so much simpler.
Q: Shouldn’t I always pay cash?
A: The old adage “Cash is King” just isn’t true anymore. Whether you’re a start-up or an established business using a large chunk of your cash to buy equipment can negatively impact your cash flow, the opposite of what you want.
Using financing to buy equipment allows you to pay for it in steady increments rather than all at once. This way, your equipment can start to help you bring in more profit before you even pay the whole cost of it. In a sense, the equipment is paying for itself.
Q: Is a bank my only option for financing?
A: Absolutely not. Though some banks will do equipment financing, they are far from the only option. Specialized, industry-specific equipment financing companies tend to be the ideal funding sources, since they have the experience and expertise.
Q: How hard is it to get equipment financing as a start-up?
A: If you find a lender with experience working with newer companies, the process doesn’t have to be difficult. You may have to rely on your personal credit history or accept a slightly higher interest rate, but at the end of the day getting equipment financing for a new business is 100% possible.
Q: What happens at the end of the lease?
A: There are numerous end of lease options available, so it depends on how your plan is set up. With financing, the equipment is yours at the end of the plan because you’ve paid of the cost throughout the term.
When leasing equipment, it’s typically different than the traditional car lease. Instead of giving the equipment back, you’ll usually pay an agreed upon amount and you receive ownership of the equipment. This end-of-lease payment can be as little as one dollar or it can be closer to 20% of the purchase cost. If the end-of-lease cost is too high, it can also be broken down into smaller payments.
Q: How do I get started?
A: The first step to getting the equipment financing you need for your business is to find your ideal lender and apply. Applying online tends to be the fastest and most convenient for busy business owners. Once you apply, a financing consultant will get a hold of you to talk about what it is you need from a financing plan. A few more simple steps, and you’ll have your new equipment up and running.