Starting a new business requires careful planning and investment in essential assets. For many start-ups, acquiring the necessary equipment can be a significant financial hurdle. This is where equipment financing and equipment leasing come into play.
In this article, we will explore the world of start-up equipment financing, its benefits, how to qualify for it, and much more.
In this article…
- How start-up equipment financing and equipment leasing work
- Where to get equipment financing as a start-up
- Equipment financing vs. equipment leasing
- Benefits of start-up equipment financing
- How to qualify for start-up equipment financing
- Frequently asked questions
- Beacon Funding: Your Partner in Equipment Financing
How start-up equipment financing and equipment leasing work
Start-up equipment financing and equipment leasing are financial solutions designed to help new businesses obtain the equipment they need to operate. These solutions work by allowing businesses to borrow a specific amount of money to purchase equipment and then repay the borrowed amount over a predetermined period.
Why is equipment financing important for start-ups?
Conservation of Capital: Start-ups often have limited capital. Equipment financing allows them to acquire essential equipment without depleting their cash reserves, preserving funds for other expenses.
Preservation of Credit Lines: Equipment financing is a separate funding source that doesn’t affect a start-up’s credit lines with lenders. This keeps credit lines open for other financial needs.
Plus, it allows you to build business credit lines which could be beneficial in the long run.
Immediate Access to Quality Equipment: Staying competitive often requires access to the latest equipment. Equipment financing allows start-ups to access and afford better technology without long waiting periods.
Tax Benefits: Depending on the arrangement and location, equipment financing can offer tax deductions or credits, reducing overall tax liability.
Fixed Monthly Costs: Equipment financing typically involves fixed monthly payments, making budgeting and cash flow management more predictable.
Asset as Collateral: The equipment being financed often serves as collateral for the loan, potentially making it easier for start-ups to secure financing.
Opportunity for Growth: Equipment financing can be a strategic investment, enabling start-ups to expand their operations, take on larger contracts, and grow their customer base.
Risk Mitigation: Some financing options include maintenance and upgrades, reducing the risk of equipment depreciation.
The business has possession of the equipment from the start, and repayments are made over a set period until the loan is fully paid off.
Where to get equipment financing as a start-up
Start-ups have several options for obtaining equipment financing:
- Traditional Banks: Banks offer equipment financing but may have strict requirements.
- Online Lenders: Online lenders often have a faster application process and may be more accessible to start-ups.
- Equipment Financing Companies: Specialized equipment financing companies may offer more tailored solutions for start-ups.
- Government Programs: Some government programs provide grants or low-interest loans to encourage business growth.
Equipment Financing vs. Equipment Leasing
Equipment financing and equipment leasing are both methods for acquiring equipment, but they have key differences:
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Commercial Equipment Financing
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Commercial Equipment Leasing
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Objective
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Equipment Ownership.
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Equipment Ownership.
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Contract Type
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EFA (Equipment Finance Agreement).
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Lease-to-own structure.
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Payment Structure
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Monthly payments.
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Monthly payments.
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Ownership Transfer
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Borrower owns the equipment when the agreement begins and will retain ownership at the end of the term, if all obligations are met.
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Lessee typically has the option to purchase the equipment at the end of the lease term.
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Length of Agreement
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Term length 12-84 months.
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Term length 12-84 months.
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Upfront Costs
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Upfront money requirements are based off credit profile.
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Upfront money requirements are based off credit profile.
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Tax Benefits
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May be eligible for Section 179.
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Monthly payments may be deductible during the life of the lease.
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Maintenance and Upkeep
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Borrower is responsible for maintenance and upkeep.
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Borrower is responsible for maintenance and upkeep.
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End-of-Term
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May be structured with a balloon payment to lower monthly payments.
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Lessee can choose to purchase the equipment, return it, or (in some scenarios) renew the lease. Most common purchase options are $1, 10% (of original equipment cost), or FMV (current fair market value of the equipment).
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Guarantor
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Often requires a personal guarantor who answers for the debt or obligation (this is usually the business owner).
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Often requires a personal guarantor who answers for the debt or obligation (this is usually the business owner).
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Equipment leasing may be more suitable for businesses that frequently upgrade equipment and require lower upfront costs.
Benefits of start-up equipment financing
Start-up equipment financing offers several advantages, including:
- Preserving cash flow for other business needs.
- Access to tax benefits.
- Affordable low monthly payments for better budgeting.
- The ability to own equipment at the end of the loan term.
This financing option enables businesses to acquire essential assets without depleting their working capital, which is crucial for their growth and success.
How to qualify for start-up equipment financing
Qualifying for start-up equipment financing typically requires:
- A strong business plan.
- Good credit.
- A down payment.
- Proof of your ability to repay the loan.
Lenders assess your business’s financial stability and the equipment’s value to determine eligibility. Check out Beacon Funding’s extended approval criteria to learn more.
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Frequently asked questions
Are there equipment loans for start-ups?
Absolutely, Beacon Funding specializes in providing equipment financing solutions tailored to the unique needs of start-ups and young businesses. With over 32 years of experience in the industry, we have an impressive track record of approving 7 out of 10 businesses within the next business day.
Talk to one of our financing consultants to learn what you can qualify for.
Can my start-up finance used equipment?
Yes, there is no age restriction on the equipment Beacon Funding finances. As long as the used equipment is in good shape, there’s a good chance we can finance it! Beacon Funding can finance any used equipment you find even from a third-party.
What approval criteria are required for an equipment loan at Beacon Funding?
During the approval process, Beacon Funding evaluates your business credit history (including bank and trade references), personal credit history of the owner(s), and collateral value of the equipment. If your credit history has some negative items, we can often approve a lease with a shorter term and/or a down payment.
Unlike traditional lenders, our approval criteria extend beyond your time in business. Check out our extended approval criteria here.
What is the typical term for an equipment loan?
Most leases or financing agreements are written for 24, 36, 48, or 60 months, depending upon the type of equipment. Leases or financing agreement for items that depreciate rapidly (such as computers) are usually shorter terms. Expensive, durable machinery can be leased with terms up to 84 months.
How can I increase my chances of getting approved?
Additional ways to strengthen your application:
- Put additional cash down or collateral.
- Add a co-signer or guarantor.
- Tell your financing consultant on how you plan to use your equipment to generate revenue.
Beacon Funding: Your Partner in Start-up Equipment Financing
When it comes to securing the equipment necessary to launch and grow your business, Beacon Funding is your leading choice. With more than 32 years of experience and happy customers, Beacon Funding specializes in financing equipment for start-ups and young businesses, ensuring a smooth and hassle-free process.
Choose Beacon Funding as your partner in start-up equipment financing and embark on your journey to success with confidence. Our commitment to your business’s success makes us the ideal choice for helping you acquire the necessary equipment without the financial burden.
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