Questions to Answer Before Applying for Equipment Financing
It’s important to know the right questions to ask, and the considerations that go into formulating an accurate answer. Having trouble determining whether you need to purchase equipment or how to do so? In this post, we’ll review the questions you should ask prior to applying for equipment financing.
What to Consider Prior to Pursuing an Equipment Loan
1. Do I Need Equipment (and Do I Need It Right Now)?
Before considering financing options, you should determine whether you need the equipment. A small marketing agency, for example, might want the latest and greatest Apple laptops. However, are these laptops pivotal to business success, and are they needed right now?
The marketing agency shouldn’t buy the laptops simply because of its technological features. Instead, the company should review its current equipment to see if its reducing productivity. If so, new equipment may be needed.
However, before making the purchase, the agency should first consider if the current equipment can last in the short-term. If so, the business should examine its finances to see if revenues could cover costs in the near future. If not, they should either wait to pursue the equipment, or consider a business loan.
2. Can Current Equipment Be Upgraded or Repaired?
Even if your company’s current equipment is no longer sufficient, that doesn’t mean that new equipment is needed. Some equipment can be upgraded. For instance, if you own a restaurant that requires ovens, you might be able to get parts upgraded instead of having to purchase new units.
Broken equipment can also be fixed. Often, repairs are more affordable than purchasing new machinery. However, if the broken equipment is going to turn into a money pit that constantly breaks down, it may be best to purchase new equipment.
3. Should I Lease or Should I Buy?
Next, consider if you should lease or buy the equipment. With a lease, you’ll make monthly payments but will not own the equipment outright. In addition, lease payments may be cheaper than monthly loan payments. Many businesses that lease equipment plan to upgrade the equipment every few years, or will only use the equipment for a short period of time.
Purchasing equipment is usually the better option for businesses that plan to use the equipment for an extended period. However, many companies lack the money to purchase the equipment outright. In such situations, equipment financing should be considered.
What to Keep in Mind When Applying for Equipment Financing
1. Do I Meet the Lender’s Requirements?
Each lender has its own requirements. Some lenders are happy to work with startups, while others will only work with established companies. In addition, there are some lenders that require high credit scores, while others will work with owners that have a low score. When applying for equipment financing, make sure you pay close attention to the requirements, so that you don’t waste your time.
2. How Much Financing Do I Need?
Equipment financing doesn’t provide a blank check for spending sprees. The money is being loaned, so you should generally only apply for what you need to invest in equipment. Determine what equipment you need right now, then figure out what the gap is between the money you have on hand and the total cost.
3. Can I Afford the Payments?
Now that you know how much financing you need to purchase necessary equipment, you need to examine if you can afford the payments. It’s fine to tighten your budget for a few months to make necessary purchases. However, you should be realistic about what you can afford. Any business that over extends itself will put itself at great risk.
Equipment is necessary for many businesses to be operational. However, cash flow limitations can make it difficult to purchase equipment. In such cases, equipment financing can help businesses purchase necessary equipment. This way, businesses can still acquire vital equipment while not having to face cash flow issues.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.