You own a manufacturing plant that manufactures computer chips. However, your current equipment is old and outdated. Your maintenance department is spending more money on repairs and upgrades.
The new parts are placing more stress on the old ones, causing the older parts to break down as the machines operate. You need new machines to save on repair costs.
However, machine replacements will cost hundreds of thousands of dollars. The cost is far beyond your budget. The slow performance of the machines has caused a dip in productivity. You also need to keep up with competitors, all of whom bought the latest machinery to stay productive.
What can you do?
The answer is a machinery loan, which can provide you with upfront money for any type of machinery you need. You can acquire an equipment loan through an alternative lender that offers loans with flexible terms and lower rates.
And, many alternative lenders are less restrictive than conventional banks. This article will show you how to acquire an equipment loan without hassle. Read further if you wish to know more.
What is a Machinery Loan?
A machinery loan falls under the equipment loan category. A lender will finance the purchase of new equipment for your business. Lenders designate a machinery loan for business equipment only.
If you need financing for other areas of your business, consider a business cash advance or a standard business term loan. An equipment loan is also a term loan, where you pay back the loan based on established interest rates and terms.
It’s a great option for business owners who need new equipment to maintain lucrative operations. And, startups may also qualify for equipment financing. A machinery loan allows you to:
Buy the latest equipment to provide the best service and products Grow your overall business
And, outright ownership of your equipment increases the asset holding of your business and boosts the value of your company.
How Will a Machinery Loan Benefit My Business?
An equipment loan allows you to buy equipment now instead of months or years later. Due to inflation or market conditions, your machinery could rise in value in the future. Getting machinery sooner will mitigate inflation.
Moreover, finance backing can help you negotiate better deals.
Can I Find a Loan if I Have Bad Credit?
There are many alternative lenders that offer business equipment financing for borrowers who have less-than-stellar credit scores. To find the best loan for you, search online for lenders who offer equipment financing. You’ll find that many lenders list minimum credit thresholds.
- Example: You may get an equipment loan if you have a minimum score of 500.
Under an equipment finance program, the new machinery qualifies as collateral. Therefore, you don’t have to pledge outside collateral to get the loan. Lenders are more interested in the value of the equipment instead of your credit score. If you don’t pay back the loan, the lender can seize the new equipment to pay off the remaining balance.
However, the equipment is yours free and clear when you pay off the loan.
How Can I Get a Great Rate?
To get good equipment financing rates, compare various rates offered by different lenders. Contrary to popular belief, you don’t have settle for a high-interest rate if you have sub-par credit. Additionally, you stand a higher chance of getting a great interest rate if you have good credit. You can get an interest rate as low as 7.5%, but the rate can be based on various criteria, such as:
- Credit Score
- Business Income
- Debt-to-Income Ratio
However, a good interest rate must coincide with a suitable term that’s within your budget.
How Can I Get a Good Term Loan?
A good term depends on your needs and budget. If you want a loan with a shorter term, you’ll pay a higher monthly payment but less interest overall.
If you want a loan with a longer lifespan, you’ll pay more interest over time but will have a lower monthly payment. Talk to a loan rep to determine which option is best for you.
You can get a term that lasts up to eight years under an equipment loan program. You should get an equipment loan with a fixed term and interest rate, meaning that the terms and rates don’t change throughout the loan term.
A fixed loan helps you manage your finances without abrupt surprises. Variable rates and terms can disrupt your cash flow and may jeopardize your ability to repay the loan.
What Can I Finance with a Machinery Loan?
You can secure used or new loans with business equipment financing. You can also finance more machines in a single bundle, which would simplify the terms and borrowing amount. Leasing manufacturing equipment often calls for multiple applications and payment setups that can be confusing.
Instead, choose a lender that will group your equipment needs in a single package. More importantly, find a lender that strives to create an affordable monthly payment option.
Before applying for an equipment loan, determine how much the equipment would cost. Equipment financing typically allows you to borrow between $25K to $4 million. From there, list the equipment that you need and the cost of each unit.
Can I Find a Lender that Offers 100% Financing?
A good lender should offer 100% financing. Anything less than 100% financing forces you to pay for the remaining balance out of pocket.
Many business owners don’t have the down payment to secure the remainder of the equipment purchase, especially when machines cost thousands of dollars. Instead, you can find a lender that secures all financing of the machines with $0 down.
What is the Most Important Factor to Consider when Getting a Machinery Loan?
The most important part of obtaining a machinery loan is finding a trustworthy lender. Lenders often take advantage of borrowers due to lower credit or minimal business experience. However, you can get an equipment loan with a good rate despite past credit issues.
Financing your equipment helps you hedge against inflation, secure new equipment, and enhance your business value. Talk to loan reps to see how they can customize a suitable loan package for you.
Interested in equipment financing? Click here to learn more about equipment loans from Strategic Capital.
Checking for pre-approval will not affect your credit score.