Starting a new business is always a tough and challenging process that will require you to employ all of your resourcefulness and business savvy to make sure the venture goes off the ground, so to speak.
More often than not, most businesses fail within the first year, the problem being not so much the poor reception of the products or services, as poor financial planning, debts, and a lack of a marketing campaign.
Now, unless you have money to burn and you don’t mind buying all of your business assets in advance and hoping for the best, you may want to consider procuring some other way of obtaining the machines you need to run your business.
Preferably, this alternative way should include not having to pay for everything straight away, so you can have some breathing room in terms of how you’re dealing with the financial side of the deal, so to speak.
In this article, we’re going to talk about two major ways you can secure financing for the equipment you need to run your business – equipment loans and equipment leases. Of course, we’ll be skipping the scenarios where you have enough money to buy the equipment straight up because that would probably be the best option if you already have experience with the line of business you’re starting up.
That said since most entrepreneurs don’t have much money to start with, securing an equipment loan or a lease can be a lifesaver for the business.
Here’s the deal in more detail.
Equipment Loans
Probably the easiest way to describe what an equipment loan is would be to compare it to a car payment in successive monthly installations.
For example, if you want to purchase a car but you don’t have the money to pony up for the whole cost right away, you can split up the total price of it and pay it in monthly installations until you’ve paid the entirety of the debt. After that, the vehicle is yours and that’s it.
Now, the procedure for equipment loans for businesses functions in a similar way. You take a loan for a piece of equipment or multiple pieces of equipment you need to run your business, then pay for it over an extended period and once you’ve paid the last installment, the equipment is yours forever and you can continue to use it, sell it, make scrap metal out of it, it’s your call.
Here are a couple of important aspects of equipment loans you may want to take into consideration before queuing up for one.
Full Ownership
Unlike getting an equipment lease, securing an equipment loan means you end up owning whatever equipment you were paying for on a monthly basis after the designated period has elapsed and you didn’t miss on any of the payments along the way.
This is a major factor for the folks who plan to work in their line of business for years to come, as owning the manufacturing equipment is a must if you mean your business to have any sort of future.
Amortizes the Costs
One of the major reasons why a young entrepreneur might opt for an equipment loan would certainly be the reduced costs.
While it’s always better to be able to just buy something and then own it 100% straight away, this is not always financially possible, especially for a young entrepreneur, so being able to use the equipment straight away and then paying a certain monthly fee until the equipment you took is entirely yours would certainly be a better option.
This amortization of the monthly expenditures can mean the difference between being able to run the business in the first place and abandoning the entire venture completely right off the bat.
High Credit Score Required
One of the most important requirements for securing an equipment loan would certainly be a decent credit score.
To be precise, you may need more than just that, because credit score requirements tend to be fairly high when business equipment securing is in question. So, if your credit score isn’t the best currently, you may want to take some steps to make it better before attempting to apply for one of these loans.
Why go through the hassle of getting denied first and only then fixing your credit score so that you can try again when you can tackle your credit score right away on your own.
If you have a low credit score and you need immediate financing assistance, consider availing a secured loan.
Equipment Leases
As the name suggests itself, an equipment lease is different from an equipment loan in that you don’t own the piece or pieces of equipment you’ve borrowed at the end of the term.
While this may not sound like the best deal around, many young entrepreneurs still opt for this sort of arrangement because the monthly payments are considerably lower than with equipment loans. Also, you don’t need to have that high of a credit rating to sign up for one of these deals, so even folks with less than perfect credit score, so to speak, can get on board with this sort of arrangement fairly easily.
Of course, as is the case with equipment loans, you get the equipment straight away, so the functional side of the deal is the same with loans and leases, so to speak.
An interesting solution for short-term projects
In case you are ahead of a project that has an expiration date, so to speak, and that is meant to research some phenomenon on the North Pole, for example, or look into the development of some virus or the other, leasing your equipment rather than buying it can save both you and your sponsors (in case your project is government-sponsored, for example) a bunch of money.
So, if you need some lab equipment, for example, to build a lab where you’ll be testing samples and finding the cure for diseases, leasing the syringe cabinets and those machines that spin the vials at speed may be a much better solution than outright buying the stuff. In such a case, you’d be forced to try to sell this equipment underprice later on, or just stick with it and be forced to pay for its storage and maintenance.
All in all, whether you find equipment loans or equipment leases more appetizing for your upcoming business venture, the important thing to take care of before you get involved in either would be to fix your credit rating (if it needs fixing) and take a long hard look into what your business needs to run smoothly.
If you have these two questions resolved and you understand how much money you can pony up on a monthly basis to make the payments, you will be in an excellent position to make the best of your loan or a lease.
Author bio:
Ayla Anderson is an avid reader and an enthusiastic blogger who writes articles on home improvement, business, Family, and beauty. She is also an MBA student who spends much of her time giving advice to new small businesses on how to grow their businesses. You can follow me on Twitter
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