Equipment financing enables businesses to purchase “hard assets” that are needed to maintain current operations or increase capacity — and therefore enhance competitive advantage and long-term profitability. For example, a restaurant may want to purchase another oven, a courier company may want to purchase additional vehicles, and so on.

The Truth About Equipment Loans

Typically, the equipment that is purchased with the funds serves as collateral for the loan, which means that borrowers do not have to pledge additional assets. Furthermore, unlike equipment leasing, borrowers own the equipment outright versus renting it from a leasing company.

This is an important and yet often overlooked advantage, because while the monthly payments for equipment leasing are (obviously) lower than equipment financing, in the long-run the total cost of borrowing is significantly higher. With this in mind, it’s also essential to highlight that not all equipment financing companies have the same policies. To help you navigate this critical decision-making process, here are 7 questions to ask a prospective lender before you sign on the dotted line.

7 Key Questions to Ask a Prospective Equipment Financing Company

  1. Do you charge any up-front fees? Simply put, the only answer you should accept here is “no.” And if you hear “all equipment financing companies charge up-front fees,” then you can be assured this is a lie — and it’s in your best interest to end the conversation here.
  2. Can I purchase from the vendor of my choice? Some equipment financing companies insist that you purchase equipment from certain vendors. Similar to the up-front fee issue described above, this should be an immediate deal-breaker. You should have complete freedom to choose a vendor (or vendors) that satisfy your requirements — not a financing company’s.
  3. Do you support small and mid-sized businesses? Some equipment financing companies target large enterprises, because they are generally less risky and more profitable to work with. Ensure that your partner is committed and dedicated to funding small and mid-sized businesses.
  4. What is your experience? As the old saying goes: there is no substitute for experience. Issues can — and likely will — arise during the life of your loan that will require a discussion, and potentially some adjustments. For example, your equipment investment may prove to be far more successful than you anticipated, and you may want to borrow additional funds to generate even more ROI. You want to know that your equipment financing partner has the expertise to help you make smart, safe decisions that are in your best interest — not theirs.
  5. Do you offer various repayment options? Do you plan on repaying your loan in one year? Two years? Five years? Your equipment financing partner should offer various repayment options, and work with you to identify the duration that maximizes your financial health (i.e. cash flow, cost of borrowing, etc.) at minimum cost.
  6. Can I choose between leasing or purchasing? In basic terms, a lease is like renting, while financing funds ownership. Both funding options have benefits depending on your industry and the type of equipment you need. Leasing your equipment provides the flexibility to continue to upgrade as new models become available, making it a good choice for technology purchases and other equipment types that become obsolete in a short time. Payments are generally tax-deductible as business expenses, and you can choose to renew the lease or find better equipment at the end of the terms. Financing gives you the money to purchase equipment outright without using cash you need for running your business. You get the benefit of the Section 179 tax deduction for equipment purchases, but payment for the equipment is spaced out across the terms of the financing agreement instead of being made up front. 
  7. If I choose to lease, can I buy the equipment later? Fair market value (FMV) and dollar buyout leases are common options from alternative lenders. If you’ve ever leased a car, you’re familiar with how FMV leases work. In these agreements, you make fixed payments for the duration of the terms and have the option to either upgrade the equipment or buy it at a fair market value. Dollar buyout leases are more expensive each month, but at the end of the terms, you can own the equipment for $1. As with equipment financing, both options give you the ability to purchase equipment you couldn’t afford to buy outright by breaking the price down into manageable payments.
  8. What is your policy on bad credit equipment financing? If you have exceptional business and personal credit, then this question won’t be part of your due diligence. However, if you’re among the hundreds of thousands of business owners who don’t have flawless credit scores, then it’s vital that you work with a partner that looks at other criteria to determine your creditworthiness.
  9. What is your turnaround time? Last but not least, ensure that you work with an equipment financing company that understands time is of the essence. They should commit to evaluating your application within a day, and upon approval, they should have the funds in your account within a week.

Equipment Financing Benefits

At National Business Capital, we’re pleased to have “client-facing” answers to each of these critical questions. Specifically:

  • We do not charge up-front fees of any kind.
  • You can purchase equipment from the vendor of your choice — there are no industry restrictions.
  • We proudly support small and mid-sized businesses across the country, and have stellar testimonials and an A+ rating with the BBB to verify our commitment and credibility.
  • We have several years of in-depth experience in the alternative lending marketplace.
  • We offer various repayment options, ranging from one year up to five years.
  • We do not insist on exceptional credit scores. Impaired or bad credit are not deal-breakers.
  • We assess all applications within 24 hours, and upon approval, we transfer funds into our clients’ accounts within days. We also have about a 90% approval rate.

To learn more, contact us today for your free, no risk and no obligation consultation. Or if you’re ready to move forward now, you can complete our simple one minute application below!