Equipment Financing &
Leasing

What is Equipment Financing and How Does it Work?

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Equipment acquisition is a crucial component of business growth. You can streamline organizational efficiency, automate your systems, and expand your operations by making new investments. However, businesses might not have the financial capability to keep pace with the ever-changing industry. Fortunately, equipment financing will bridge the funding gap and help you meet your business goals. The term refers to a financial instrument or a line of credit for a company to purchase tools and machinery to meet its evolving needs, boost productivity, improve workers’ safety, and reach new markets. This type of loan is a solution to purchase new equipment if you have no means to pay in cash.

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Most businesses take advantage of improved productivity to cover the regular payments for online equipment loans. In that regard, it’s even more strategic to apply for this type of credit rather than take out a loan from a national financial institution or a bank. The typical banking practice requires you to present your personal property as insurance for commercial loans. And the collateral value is usually worth more than borrowed cash. In contrast, this type of business financing is collateral-free, so you avoid pledging your assets to grow your business while you take on a line of credit. Instead, the lender essentially owns the equipment while you pay the monthly payments for the right to use it. The terms vary monthly, quarterly, bi-annually, or any other pre-arranged schedule you have made with the lender.

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Meanwhile, the lender is still protected. The asset serves as insurance that it can possess if the business defaults on the payments of its loans small business. As a company with limited capital, business equipment financing is a crucial first step to kickstart your business while giving your options for other lines of credit. For example, even if you already received financing to obtain equipment, it does not limit you from applying for a merchant cash advance, business loan, or additional funding for working capital.

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You can manage your budget better

Even if you can pay in cash for the equipment, you will blow a massive hole in your budget. Instead, paying a fixed amount for the credit at regular intervals will help you manage your personal finances better. And as already mentioned, you can cover the payments from the additional income you may earn from modernizing your systems.

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Savvy business owners understand wealth management, so they spread their exposure rather than putting all their money into one investment. The option also allows you to hedge vs. inflation since you pay a fixed amount at regular intervals. Finally, it means you do not have to scramble for new sources of income during the loan term.

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You can improve your business score

These loans will also help boost your min credit score by ensuring that you pay monthly obligations diligently. In addition, it’s advantageous for your business to have a good credit score to access more long-term loans at more favorable rates from the bank. In the future, you may need a personal line of credit to expand your operations.

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The rate is lower compared to cash loan

Ultimately, you want to keep your expenses as low as possible if you take in new credit. Historically, these loans have lower accrual rates than securing loans from a bank. So, the equipment financing rates give you some financial elbow room to maneuver. As a result, you can use the money you saved and redirect it elsewhere instead of securing a credit loan. For instance, if it costs 10% to finance your equipment purchase and it yields a return of 15%, you still save about five percent each month.

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You can potentially gain tax breaks

Since you own the equipment, you can deduct the purchase price from your gross income. You won’t have such a luxury when you take out credit loans. Section 179 lists the qualifying equipment eligible for deductions. ​​​

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Your credit score may not be as important

Since the requirements for equipment financing are not as stringent as commercial loans, your personal credit score will not always work against you. For instance, at Union Commercial Capital, we are less worried about your past financial history than your ability to pay in the future. We also have a bad credit loan option, which is perfect for your needs, especially if you encounter difficulties securing cash loans from the bank.

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You get full ownership of the equipment

In equipment leasing, ownership reverts to the lender or the bank when your contract agreement lapses. Meanwhile, you will own the machine under equipment financing once you fully pay your obligations.

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Ultimately, it’s the best option if the equipment is integral to your operations. In addition, you do not have to renew your contract with the leasing party after your agreement lapses.

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Quick Processing

The required documentation for equipment financing is typically fewer than other credit instruments. It means you do not have to waste time preparing the documents to support your application for the bank loan. Meanwhile, our hassle-free procedure is one of the most attractive features of Union Commercial Capital, and you can finance your plan to purchase more assets. Those are some benefits of equipment financing for individuals that you should seriously consider rather than applying for a credit loan from the bank.

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Ultimately, you need to be competitive in your industry to survive. For example, suppose your competitors secure a bank loan to invest in new technology while you are still stuck with your old machines. In that case, you are severely handcuffing yourself from delivering a more efficient service to your customers.