Equipment Financing Review

Why Use Equipment Financing?

It takes money to make money, but sometimes having the funds you need for essential equipment can seem like an impossible barrier for continuing your small business. When this is the case, it might be a good idea to try equipment financing, which allows you to take out a loan or lease to help you get the gear you need for your business to flourish. Equipment financing companies include traditional banks, credit unions, loan brokers and other alternative lending options. Three popular companies are Crest CapitalTetra and U.S. Bank.

Equipment Financing: What to Look For

Equipment financing companies vary. Some require more paperwork than others, requesting past tax returns and other information, while some only require a credit check and limited information to fund your business for equipment.

Many offer different plans for different types of organizations. For example, a business might receive a different financing plan than a 501(c)(3) organization. Some equipment financing companies accept bad credit and let the equipment stand against the loan as collateral, which could help you build up your credit assuming you pay on time.

Many different payback options are also available from most lenders and leasers. For instance, seasonal payback options may help you in your business's off-season. It's important to look through all of these factors when investigating which option is right for you. We also recommend considering what type of financing the companies cover, whether they offer Section 179 qualified financing, and what types of equipment they'll finance, along with how much of the equipment they'll cover.

Types of Financing
There are generally two different options when it comes to equipment financing. You can either select an equipment loan or an equipment lease. With both, the interest rates vary, as do the terms of the financing. Generally speaking, the term lasts the life of the equipment, though this is not always true. The difference between an equipment loan and a lease is that with the loan, you are the owner of the equipment. If you opt for a lease, your funder is the owner. For some leases, your funder will offer you the opportunity to purchase the equipment once you're finished paying the lease.

Section 179 Qualified
When an equipment loan is Section 179 qualified, the IRS allows you a tax deduction based on your equipment leasing and financing. Some equipment financing companies offer Equipment Lease Agreements and Equipment Financing Agreements that are structured so that, combined with Section 179, your tax deduction will most likely exceed your annual cash outlay. If you plan on leasing your equipment, making sure the agreement is Section 179 qualified is a good financial strategy.

Covered Equipment
Each business has different equipment needs, and each equipment financing company covers different types of equipment. Reviewing the type of equipment each company covers is a good idea so that you can be sure you get the funding you need. Several companies provide coverage for almost all types of equipment. Others specialize in specific types equipment or organizations. Almost all of these services will cover up to 100 percent of the cost of the equipment, but some also offer to cover soft costs like tax, installation fees and more.

The best small business equipment financing for you depends on what type of equipment you need and whether you'd like to lend or lease your equipment. If you don't have enough cash upfront to finance equipment for your business, equipment financing can be a helpful option.