Working Principle Of Equipment Financing.
Asset loans provide for small payments that include the principal amount and interest for an agreed period. Depending on the lender, there are several ways to secure the loan for the equipment:
- A lender may ask for security to act as collateral, and after the loan has been cleared, the collateral is returned plus the ownership documents of the equipment given.
- A company may receive the whole amount of the equipment value. If the loan amount leaves the lending company at risk, the business may be required to pay a down payment amount as a form of security.
- The lender may use the equipment itself as collateral. If the business fails to make deposits of the agreed amount, the lender can get back their equipment and keep all deposits made for the machinery.
Rates And Terms of Equipment Financing.
Like other financing options, the terms and rates of equipment financing differ depending on the current market trends and the qualifications required by the moneylender.
Common factors include:
- The funding speed.
- The available fixed interest rates.
- Repayment periods provided/terms.
- History of the organization and the minimum credit score required.
How To Qualify For An Equipment Financing Loan.
Personal Credit Score.
The organization’s credit score will be an essential factor when applying for an equipment loan. The higher the credit score, the higher the chances of accessing the loan and better terms.
A Business Profile And Review of Operations:
The lender will want to know how the business has been operating, the number of years it has been working, its net worth, the number of employees, and its ability to repay the loan in the agreed period.
Sources of Equipment Financing.
Many lenders can offer equipment financing to businesses and organizations in the modern market. Sources range from specialized online lenders to traditional national lenders. Banks, microfinance, and several SACCOs also offer equipment financing services to businesses and organizations. Try and get to see all their rates and requirements and choose a good lending company for your business and organization.
Equipment Loan Vs. Equipment Leasing.
Equipment Loan.
In this case, the machinery secures the loan. If the business fails to repay the loan borrowed, the lender collects back the machinery as collateral.
A disadvantage of this system is that the machinery costs more in the long term than if it purchased it outright.
Equipment Lease.
Leasing comes in handy if you prefer trading the machinery out or lack enough money to pay the down payment required.
The two significant types of leasing are:
- Operating-Acts as an alternative to the loan and finance the machinery you intend to possess in the long run.
- Finance-Similar to a rental agreement, and after the agreed period, you will have to return the machinery.
Frequently Asked Questions.
How To Find Equipment Financing?
You can google online and get a list of possible equipment financers, or ask your bank to offer equipment financing.
Can I Extend The Repayment Period?
Yes. But this will lead to an increase in the loan rates.
