Equipment Financing: Loan Options For Manufacturing Business Owners

Buying equipment to keep your manufacturing business run smoothly can get very expensive. However, equipment financing can help you with that. There are a variety of options you can decide on to fund the equipment your manufacturing business needs.

Benefits of Equipment Financing

Equipment financing is an advantage because it can save manufacturing business owners from paying large equipment purchase prices upfront. If you choose to utilize equipment financing, this means your working capital will increase. Furthermore, it helps you buy the most up-to-date equipment available.

Besides the advantages above, equipment financing can also give you tax benefits. With each repayment that a manufacturing business owner makes because of equipment financing, interest is paid. The interest you paid will then be written off as tax-deductible.

Financing Options You Can Consider

Here are the options you can try to finance your desired equipment:

Term Loans

Taking out a term loan can help you borrow a lump sum of money for purchasing your needed equipment. This type of loan can be repaid over a set period. Moreover, term loans can either be on a fixed or variable interest rate, depending on the lender.

Term loans typically have a repayment term that ranges from 6 months to 5 years. 

Online lenders such as CreditNinja usually offer fast funding when it comes to term loans. You can get the money on the same day your loan application got approved. Most of the time, online lenders and other financial institutions consider the following in granting your loan application:

• Personal credit score

• Business credit score

• Personal tax returns

• Business tax returns

• Annual revenue

• Time in business

• Income statements

• Balance sheets

•  Business plan

Selecting the right term loan is crucial in equipment financing. The better your credit scores (business and personal) are, the better your term loans might get. Your credit score also influences the amount you are qualified to borrow, and the interest rate you might avail.

Specialized Equipment Loans

This type of loan is designed specifically for purchasing equipment for your small business. Banks and online lenders typically offer these loans.

Equipment loans can be repaid over a fixed term. The term usually runs from 1 to 5 years. The amount you can get is as high as $5 million. Moreover, interest rates can be relatively low.

Equipment loans usually require making the purchased equipment as collateral. This means your equipment might get repossessed if you fail to repay the loan. On the bright side, collateral-backed equipment loans can benefit newer manufacturing businesses or those with low credit scores.

Small Business Lines of Credit

This type of financing option is a revolving debt. It is an alternative to equipment loans and term loans. Small business lines of credit let you withdraw as much cash as you like as long as you have available credit.

Small business lines of credit don’t have a fixed APR. Instead, it has a variable APR, which depends on a particular financial index. Furthermore, this type of loan does not require any collateral. 

Since this type of option is revolving debt, you have the flexibility to use this to buy your desired equipment or cover other expenses your manufacturing business needs. Moreover, small business lines of credit are much easier to qualify compared to other business loans. 

SBA Loans

Equipment financing may be available in SBA loans. The Small Business Administration (SBA) is a government agency designed to help small businesses with their financing needs. Furthermore, they work with various lenders that serve as their partners in achieving their goals.

SBA loan borrowing limits can be as high as $5.5 million. This will allow you to finance large equipment purchases. Moreover, repayment terms can run up to 20 years, depending on the type of loan. However, some lenders might set a shorter repayment term and a lower loan amount. 

The following are the programs under the SBA that can help you with your equipment purchases:

• 7(a) loans;

• Microloans;

• Certified development company/ SBA 504 loans.

SBA loans usually require you the following to get approved:

• You own a US-based for-profit business;

• Your business should be considered as a small business based on SBA standards;

• You have invested equity;

• You should show that your business can’t get funds from other lenders. 

Small Business Credit Cards

Small business credit cards are also a way to finance your equipment. Unlike some business loans, credit cards are easier to qualify. You can avail of a 0% APR introductory period. You might also save some cash if you are earning points, cashback, or miles on your purchases.

It is vital to note that having a credit card also carries some disadvantages. They can charge higher interest rates than loans. Hence, it would help if you would be careful with your spending.

Takeaway

Before you decide what financing option is best for you, it is vital to consider your current financial situation. Nobody wants to end up in deeper debt. Furthermore, since loans usually vary from one lender to another, it would help if you shop around to find the best fit.