Many types of business loans require a borrower to have a valuable asset to be used as collateral to secure the loan. With equipment loans, the equipment itself serves as collateral so in most cases, the borrower does not need to provide anything else. This can be a big advantage to small businesses that might not be able to own the sorts of assets lenders typically look for to be used as collateral for loans.
Since equipment financing has built-in collateral, lenders can be more flexible about approving applicants. Your business credit score is less of a factor and lenders are more inclined to approve younger businesses that don’t have the years of experience that lenders look for with regular business loans. Applying for equipment financing requires much less paperwork than applying for a regular business loan, so the application and approval processes are usually pretty fast.
Equipment financing typically covers a significant percentage of the total price of the equipment. This allows business owners to get the equipment they need without having to face a huge up-front expense. In fact, many business owners who could pay for their equipment up front still choose to use equipment financing since it allows them to use that money to improve their business in other ways.
Terms for equipment financing are often rather flexible when compared to taking out a regular business loan. Equipment financing terms can last anywhere from a few months to over a decade, depending on the expected useful life of the equipment.
Equipment financing is not ideal for all types of equipment. If the equipment you’re interested in is something that will become obsolete or worn out by the time it’s paid off, equipment leasing may be a better option since it would prevent you from getting stuck with outdated equipment in the end.