What is Commercial Equipment Financing?

What is Commercial Equipment Financing?

Businesses requiring machinery and equipment to start or expand operations can seek commercial equipment financing. These credit lines will allow your business to purchase the equipment necessary to provide your product or service. For example, a landscaping company may require small machines that move the earth and tree trimmers. Almost any type of equipment you need to move your business forward can be financed to meet your preferences and specific needs.

Types of Commercial Equipment Financing

Your financing will come through a manufacturer or dedicated lender. A manufacturer, such as John Deere for farming products, may offer you direct financing on new equipment. If you need office furniture and supplies, a retailer like Office Depot may offer you a line of credit. These direct-from manufacturer loans can offer you incentives like low interest rates, but they are not always the best options.

Going to a bank is a more traditional way to seek business financing. Based on your business or personal credit and the needs you have, a bank can extend you an unsecured or secured loan. An unsecured loan does not require collateral; a secured loan can use any of your assets as collateral to reduce the cost of the loan to you. Opting for a secured loan through a bank will usually save you money in your equipment purchases and get you better loan terms.

Benefits of Commercial Equipment Financing

Almost all businesses rely on some amount of debt and financing to move forward. You need basic equipment just to get started before you begin pulling in a profit. Without some amount of debt, you will be at a disadvantage compared to your competitors. They will be using loans and financing to build a bigger operation, and you need to do the same to keep pace.

Building a business credit history will benefit you in the future, and taking out a loan is the best way to start building your credit. Even if you are a moderate spender who is afraid to go into too much debt, you should have a few loans to build a relationship with your bank and show you are fiscally responsible. While you may have enough money to keep building your business today, you cannot assure this will always be the case, and preparing your credit for the future will help your business survive in the long run.

Risks of Commercial Equipment Financing

All debt carries some degree of risk. Secured loans are more risky for the borrower because a default will mean you will have to forfeit the asset you placed as collateral. Aside from defaulting on loans, there are other risks to using financing to purchase commercial equipment.

One risk is the equipment will quickly be out-paced by technology. If you feel you will have to buy a replacement in the short future, you may consider commercial equipment leasing instead. Leasing allows you to get the best piece of equipment for today then swap it for a new piece of equipment when technology advances. Leasing can also save you money if you only need the piece for a short period of time or a few projects.

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