When starting a small business, new entrepreneurs are usually preoccupied with marketing, getting a shop or place to work, and finding customers. Getting set up can require expenses that are difficult to overcome and may take more effort than any of the above issues when starting a new business. Equipment purchases are one of the biggest expenses for most companies. Depending on the type of business you are starting, it can mean getting a few types of office machines or buying big tractors, trucks, or fleets of automobiles. There are several methods of financing equipment that small business owners can consider to get the power they need to make their businesses move.
Buy it with Cash
Small equipment available at a low cost is best bought as you can afford it. Getting a loan to finance a computer, cash registers or simple office equipment can end up making the overall costs with interest prohibitive. When cash isn’t available for small equipment getting a vendor account to spread out the payments over a few months is a good, low cost option that doesn’t increase the cost with interest unless term payments aren’t met.
Both regular bank loans for small business equipment and SBA backed loans that insure your application and make it easier to get a bank loan are reasonable methods of getting the funds for large equipment purchases. Equipment loans for small businesses are a lot like a typical car loan application. They use the equipment itself as collateral for the loan, so additional collateral is not necessary the way it is for other types of small business loans. However, your personal credit may be used to determine the interest rate on the loan if you haven’t taken the time to establish a strong business credit rating that will allow the business to back the loan. This can make bank loans expensive or difficult to obtain for individuals with less than excellent credit.
Leasing Options on Small Business Equipment
Many new small business owners are surprised to find out that big businesses often do not own the equipment they use. Instead, they find the value of leasing to be a much better option. When you lease equipment it is like renting. The owner of the equipment is responsible for any major breakdowns, replacing equipment when it isn’t operational, and sometimes even takes on the regular maintenance of the equipment.
Having someone else responsible for maintenance and replacements is a big relief and a great option for small business owners that might be hit with hefty costs when a large piece of machinery fails on the job. One drawback to leasing is that since you don’t own the equipment it can’t be used as collateral for other types of business loans that will help keep your company solvent.