The Best Options for Equipment Financing for Startups
Equipment financing can be a real headache for new companies. Most of the traditional paths to funding the purchase of the machines you’ll need to start work require either a two-year operating history you’d need the equipment to start logging or they take months to work their way through the approval process, and that is an obstacle in and of itself. Luckily, the financing industry has a tendency to self-correct. If you look outside of traditional business loan options, you’ll find a variety of ways to get the equipment you need. Some are more expensive than others, but they all give you options when traditional business loans can’t be one.
One resource used by many small companies is the business credit line. Since many startups find they can access lines with $10,000 in credit or more, many less expensive pieces of equipment like computer terminals and credit card processing equipment could be purchased this way. The downside to using your credit line is not just the interest, which is easy to predict and budget for in advance. The real disadvantage to them is the loss of your cash management resource when the credit line gets tied up for months paying down a large balance you needed to charge to get to work. If your purchase won’t cause this issue, it’s worth keeping your credit line or business credit card in mind when you need equipment.
Another option, one used not only by startups but also by established businesses of all sizes, is to apply for specialized equipment financing loans. These loans are self-secure, meaning the equipment you purchase is the collateral for the loan. If you’ve ever had to finance the purchase of a home or a personal vehicle, you already have some familiarity with self-secured loans. On the commercial side, these products can finance up to 100 percent of the purchase cost. That means you don’t need a down payment if your credit qualifies you and the lender offers this option. With no depletion of your cash reserves or major draw on your credit, you can reach a return on your investment more quickly because your company will still have its full range of cash flow resources immediately after the purchase, removing the bottleneck effect often experienced when companies expand.
Working with a specialized financing company to get the equipment you need means running the risk of that equipment being repossessed if the loan defaults, but this is an advantage when you consider that loans requiring collateral you owned prior to the purchase would be risking another established asset instead of your new equipment, one that might be harder to work without. Talk to a specialized equipment financing lender to learn more.