At some point in your business career, you’d need to upgrade or buy new equipment for the increasing demand that your business is taking. It’s a sign that your business is growing, which is good. However, sometimes, we don’t have the money to buy or upgrade equipment.
Fortunately, there are types of loans out there that we can opt for when we don’t have the cash flow to buy equipment. The umbrella term for them is equipment loans, but how do they work, and what types are there?
What is an Equipment Loan?
Equipment loans are loans you can use to buy, upgrade, or repair equipment for your business. It’s an umbrella term, so any equipment, like manufacturing, processing, and even medical equipment, is included. You can even buy office furniture or vehicles if you need them.
There are many types of equipment loans out there that can surely cater to your business needs. Luckily for us, there are a lot of equipment loans online. There are even online installment loans.
Here are some of them.
Construction Equipment Loan
Whether you’re hoping to start a new business for construction or you’re already running one, you can’t operate a construction business without the proper equipment. When it comes to financing options for construction equipment, one of the most common financing methods is equipment loans.
Getting a construction equipment loan is relatively straightforward for companies looking to buy equipment. This is most probably because most construction equipment loans are secured.
When we say secure, the equipment is the collateral, so it’s easy to get one, even if you don’t have the optimal creditworthiness. But of course, there’s still a requirement that you need to meet, like:
- A good reason why the business needs construction equipment
- Have been in the industry for a few years, at least
- Have the financial statements that show the business has a good cash flow,
- Good enough credit score
- Can provide down payment
Business Aircraft Financing
Business jets are in trend nowadays because of their versatility. Whether transporting a small group of people or delivering parcels, business jets can do these tasks quickly and easily.
Luckily, business jets can be financed through different means, including loans. However, since they are pricey, lenders tend to have stringent requirements before you can get access to a loan for a business jet.
From the lender’s perspective, they need to know how your business is structured and its current financial status. That said, borrowers will often be required to provide three years of audited financial statements and at least ten years of cash flow projections.
Not only that, but often, lenders will also like to know your business’ net cash inflow and debt position, including interest and principal payment, maturity rates and terms, and even upcoming payments.
Pretty standard, to be fair, but they are stricter with these. Also, not only will they look at your business’ creditworthiness, but they will also look at the condition of the jet itself, especially if you’re opting to buy a pre-owned one.
The purchase process is stringent as they will also do a pre-purchase inspection, followed by the closing and filing the aircraft title in the registry, etc. After these, they will formalize a deal suitable for your business’ aircraft financing options, including the interest rate, repayment terms, etc. If you notice, it’s pretty much like buying an RV but more stringent.
However, depending on the state, some terms and processes might differ. However, most of these differences are pretty small to make an impact, like a cap on the interest rates, the purchasing limit of the loan, etc.
Commercial Auto Loan
A business auto loan, also known as a commercial auto loan, is a type of equipment financing loan that gives you access to capital to purchase a business vehicle. Most commercial auto loans are secured, meaning the vehicle counts as collateral. This means that if you default on this loan, the vehicle will be taken back by the lender since they are the co-owner of said vehicle.
While there isn’t much difference between a commercial auto loan and a consumer auto loan, commercial auto loans are much more accessible, and you usually have a wider range of vehicles you want for your business. This is usually important for a business that requires specific types of vehicles like minivans, trailer trucks, etc. It’s also useful if your business needs a fleet of vehicles to carry out services.
Although there isn’t much difference between the different equipment loan types, each has its niche. Some of them are more stringent than others, especially when it comes to aviation. But overall, they are good loans that you can access when upgrading or buying new equipment for your business.