Indeed, owning a business is never as easy as one, two three, it needs hard work and good thinking skills when it comes to managing all the necessary things like checking the health and safety of all the staff, business expenses, and sometimes business issues faced along. Honestly, there are more than that to mention and this includes the costly equipment finance which is challenging especially for new business owners. For any business, having the right and enough equipment is important to the success of their operation in the market and that is the reason why equipment financing exists. If you are new to the business and just heard about equipment financing, let this article be your guide in understanding more about how this loan works in general:
How Equipment Financing Works
From its name itself, equipment financing is a type of loan offered to business owners who needs assistance in providing the equipment needed for their company/business to operate well in the market. Usually, this type of loan has a duration to be paid off within a few years. Lenders will need to ask for any personal guarantee in addition to placing a lien on the given equipment. This permits the lender to check and evaluate personal assets in the business as its way of having assurance on the business loan they have applied for.
The basics of equipment financing are:
- The funds coming from the approved loan can be used to buy new or used equipment with an assurance that the following can operate well and help the business grow and work efficiently.
- The following equipment bought serves as the collateral for the loan. This means that whenever the borrower cannot pay on time or has difficulties paying their debts, the lender has the right to get the collateral or the equipment as a pledge by the owner itself.
- The amount of equipment financing cost to be covered by the loan depends on the lender itself. A lender can approve until 100% of the equipment cost if given that the company has a good record when it comes to its prior loan histories and clean character records to business owners in paying debts on time or other business expenses.
- When it comes to terms, it may vary from lender to lender but most of the time, its terms may range from a few months to 10 years.
- Lastly, its option may include a loan or lease.
So far, the above mention is the basics for equipment financing. Generally, equipment financing is just like any other business loan, you’ll undergo evaluation and assessment by giving out all the information that the lender asks you to provide, you’ll be informed about the terms and conditions, you’ll be asked to sign an agreement including the collateral and the responsibilities you’ll be having after being approved in your equipment load. Indeed, joining such a loan is a huge responsibility to have but it greatly benefits the business if it is managed well by the owner itself.