How To Secure Competitive Rates For Equipment Financing

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From a business owner’s perspective, the early years can be exhilarating especially when it comes to staying within budget while looking for the right equipment to increase revenue. Luckily, equipment financing offers a helpful solution. Today, equipment finance enables businesses to buy the necessary equipment when needed instead of waiting until they have the money on hand. However, like any other business loan, equipment financing also comes with interest rates. So, how do businesses secure competitive equipment finance rates?

This article will explore the various equipment financing options and how businesses can ensure they get the best rates for their loan.

What Is Equipment Financing?

Equipment financing is a type of loan companies take out to specifically secure business equipment. For this type of loan, the equipment price dictates the loan amount and terms. After the loan is fully repaid, the business may keep the equipment as theirs.

When businesses apply for equipment financing, the loan will typically be secured by the equipment they purchase. This means the lender may take the equipment back if they are unable to pay back the loan. More than that, with equipment financing, the lender could break down the total amount into small, manageable instalments to pay over a set period of time.

Businesses may use equipment financing to run their company, increase the range of products they provide, or improve their technology to remain competitive in the market.

Additionally, it will smooth out their cash flow by spreading out the asset’s cost over time.

What Impacts Equipment Finance Rates

Generally, equipment financing works similarly to a business loan. For example, businesses apply for a loan to cover the cost of purchasing new equipment outright while using it as collateral.

Business equipment is pricey, and because of this, the collateral is substantial. So, some lenders may be willing to lend businesses up to 100% of the equipment value. However, more typical are loans up to 80% of the business equipment’s value, which is still pretty substantial.

The specific percentage often varies based on the lender’s criteria, the borrower’s creditworthiness, and the type of equipment being financed.

Equipment financing loans usually have fixed interest rates. Because the equipment financing rates are fixed, businesses may expect to make the same repayment on a regular schedule.

Typically, the rates are impacted by the following:

Credit score: The better the borrower’s credit is, the better interest rates they may expect. Businesses with strong credit ratings usually secure better rates.
Equipment type and age: Equipment that retains its value or is considered essential generally may have lower rates. But, equipment that depreciates fast with time may have higher rates.
Loan term and amount: The terms and amount have a role in determining the rates of the loan. Long terms may have higher rates but lower monthly payments, while shorter terms may result in lower overall interest charges as they are repaid faster.
Down payment: Businesses that want to secure lower rates may consider putting a down payment. A significant down payment may result in lower rates as the lenders take on less risk.

Understand Your Financing Options

Equipment finance encompasses several options, such as loans, leases, hire purchases, etc.

Equipment loan (chattel mortgage): With this equipment financing option, businesses own the equipment from the start, with it serving as collateral. Over the loan term, the business repays it as per a regular schedule until it is fully repaid.
Finance lease: Another option for businesses is to lease equipment, especially when they are unable to obtain a loan to purchase it. With a lease, the business does not own the asset but pays a fee to use it during the lease period. Some lease agreements may provide the option to purchase the equipment outright at the end of the leasing period.
Hire Purchase: This option is similar to a finance lease, but the business owns the equipment at the end of the term. The business buys the equipment with an initial deposit and then leases it until it is fully paid off.

Ways To Secure Competitive Equipment Finance Rates

Know your credit rating: Creditworthiness is crucial in securing low rates, which is why it is wise to improve a business’s credit score before applying. This means paying off any outstanding debts and regularly paying bills.
Compare different lenders and loan options: A borrower should always compare lenders and loan options available in the market. This is to ensure the borrower gets the best equipment financing rates.
Leverage your business history: Another way to secure competitive rates is by emphasising solid business financials and stability. Also, businesses may leverage relationships with existing lenders and potentially negotiate for better terms.
Negotiate and look for special offers: Businesses may also use strategies to negotiate lower interest rates or better terms. Moreover, they should always keep an eye on seasonal promotions or discounts.
Consider pre-approved loans: Getting pre-approved for equipment financing offers businesses a streamlined application process and better rate negotiation. Businesses may secure lower interest rates and a repayment period ideal for them.

Frequently Asked Questions

How long does the approval process take for equipment financing?

While it takes only several minutes to apply for a loan, the approval process may range from lender to lender. Generally, most lenders deliver funding within one to three business days.

What types of equipment can be financed?

All kinds of equipment may be financed in Australia with a business loan, including construction, agricultural, medical, and office equipment.

Conclusion

Equipment finance rates are usually fixed and they typically depend on the terms, equipment type, creditworthiness, and loan amount.

Companies, especially small to medium-sized companies, often use this financing solution to obtain the necessary equipment for the business.

Equipment financing is a strategic solution that enables companies to acquire essential tools and machinery without paying upfront. This flexibility can allow businesses to maintain their operations and stay competitive in an ever-evolving market. From office supplies and computers to heavy machinery, having access to the right equipment can significantly enhance productivity and operational efficiency.