Start Up Business Loans

In a business environment, equipment leasing is a recognized method of financing. Many business owners and enterprisers turn to leasing instead of purchasing new equipment and machinery. As a business owner, what benefits can you from equipment leasing? Here are the basics:

Equipment leasing costs less. Compared to purchasing, leasing costs much less and is an ideal option for businesses with small or limited budget. Most lessors do not require down payment. If there is a down payment, the amount required is small and easy on the pocket.

In addition, the monthly lease or rent is affordable even for start up businesses. There’s no need to spend half or a third of your business budget on equipment alone. Through leasing business equipment, you can utilize your financial resource in more ways.

Save your business’s credit limit. Leasing allows you to obtain the equipment you need to start your business operations without using your credit limit. If you need additional funding or cash assistance for future projects and expenses, a healthy credit would easily impress prospective lenders and you can get approved more quickly.

Eliminate obsolescence. Equipment and machines are constantly evolving. Almost every year, you can find a more enhance version of an equipment in the market. With purchasing, you’re bound to the one you’ve bought because you’ve already spent a lot on that particular equipment. On the contrary, leasing gives you the flexibility to exchange the equipment you have for a better one at any time. More importantly, being able to use the latest technology in the market ensures your business’s maximum performance.

Uncomplicated process. Applying for a business loan or an equipment loan can take some time. Not only that, banks and lenders are often very particular about the documents you need to submit. Failing to complete your requirements can cause delays or a disapproval of your application. On the opposite, equipment leasing doesn’t require a lot of documentations.

Typically, you can submit your application online, get a response in that same day, and receive the equipment you leased in a few days or within a week or two. Those with good to excellent credit can take advantage of lower interest rates and better deals from lessors but a bad credit also does not prevent one from getting a lease.

Keeps cash flow steady. Equipment leasing helps keep the business’s cash flow steady. Since you won’t be spending a large percentage of your funds in buying equipment, you can place a larger portion of your budget on your cash reserves. Instead of taking out a loan, you can use your available funds instead to cover up your expenses.

Tax Advantages. Another benefit of leasing is the tax advantage. Purchases are automatically taxed while leased assets can be exempted. Since the equipment remains to be the property of the lessor, leased equipment can be written off from your taxes. Ask your attorney about your tax privileges particularly if you are a homebased business owner.

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If you’re a business owner planning to apply for a start up loan or additional funds, you should learn as much as you can about how loans work before searching for a possible lender.  In this article, let’s discuss some basic facts that you need to know about business financing.

Different Types of Business Loans

One of the first things you’ll probably check on is the rate of interest.  Lenders offer two kinds of interest- fixed and variable.  Fixed-rate business loans are ideal because you can calculate exactly the amount of payment you need to submit each month.  A fixed rate interest does not change from the moment you signed up for the loan until your loan term is completed. 

On the opposite, business loans with variable or adjustable interest can change at any time within your loan’s term.  Typically, the interest is based on the Prime Rate which means it can either drop or increase, depending on the market.  Most variable rate loans start up low which is why entrepreneurs prefer them over fixed-rate loans.  Nevertheless, a fixed interest rate protects you from the possibility of inflation.

Business loans can also be categorized as secured or unsecured.  Secured loans are obtained by submitting to your lender a personal property or a business asset as collateral for your loan.  Because the loan is guaranteed by collateral, lenders can afford to offer lower interest and longer repayment terms.

With regards to unsecured loans, they pose a higher risk to the lender and there comes with high interest rates and fees.  Some business owners do not have a property to submit or don’t want to risk their property at all so they opt for unsecured financing.  The disadvantage is that this type of loan can be very expensive and is offered only for limited amounts.

Business Loans and Your Credit Score

If you haven’t yet established a separate credit for your business, your personal credit history will be used instead.  When you apply for a business loan, prospective lenders would check on your credit report to determine whether or not you qualify for the loan the offer.  Having a good or excellent credit is a definite advantage because it gives you a stronger negotiating power to ask for lower interest and better terms.

Meanwhile, a low credit score instantly makes you a high risk borrower in the eyes of creditors.  Lenders often impose higher rates and limited credit for business owners with poor credit history to make up for the risk.  Thus, if you plan to apply for business financing, it is a good idea to check on your credit report first before submitting your loan application.

If you find that you’re credit isn’t impressive enough, work on building up your credit first even if it means delaying your plans for a few more months.  Not only does a high credit score guarantee quick approval, it also gives you the chance to enjoy the best deal offers from lenders.

 Read More Business Financing Facts You Should Know

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Not all businesses have sufficient start-up capital.  In addition, not all established businesses have enough money to support all expenses necessary for expansion. So the question is, is equipment leasing the right choice for you?  To answer this question, let us consider the benefits of leasing equipment over purchasing.

But first, what is equipment leasing?  Equipment leasing simply means renting business equipment. Instead of obtaining a loan to purchase equipment, equipment leasing lets you use the equipment and start operating the business without the need for down payment or cash payment.  Payment may be done in monthly installments or yearly payments depending on the type of lease you’ve obtained.

So what makes equipment leasing advantageous over purchasing?  First of all, it doesn’t repress cash flow.  With purchasing, a business is forced to give up a huge portion of its finances to buy expensive equipment.  It can take some time before a business can regain the amount of money used for buying equipment.  On the contrary, equipment leasing allows a business to start manufacturing and managing the business without the need to dispel big cash.  Thus, there would sufficient cash available to support other areas of the business. 

Leasing equipment presents different types of leases for every business.  Those businesses that are operates on a seasonal basis can avail of a “skip lease” where skipping payments during slow seasons are allowed without any penalties.  There is also a type of lease called “step-up” lease where businesses who are just starting up can defer lease payments until the business gains footing.  These are just two examples of leasing terms which are available for a business.  Every equipment leasing company offers different types of lease that each business can consider before taking their pick.

Equipment leases are tax deductible. Lease payments can be considered as a business’s monthly expense which makes it a hundred percent tax deductible. Every business owner who leases equipment should remember this important fact and inquire from their lawyers or accountant on how they can avail the tax deduction.

Another great advantage about leasing business equipment is that it lets you keep up with technology.  Machines and equipment are constantly and continuously enhanced.  A particular device can be outdated or get obsolete in just a few years.  If you purchased the equipment, it wouldn’t be practical to buy the latest model and throw out the money you spent on that equipment.  If you leased the equipment, you can easily trade your current equipment and replace it with the latest model in the market. 

It is also worth mentioning that applying for an equipment lease is so much easier than trying to obtain a loan.  Commercial banks and lending institutions generally have strict policies and procedures before granting a loan approval.  In most cases, an excellent credit history is required to qualify.  A business plan must also be presented in order to get approved.  Equipment leasing companies do not impose such requirements from their clients.  Usually, leasing companies only consider the last six months of an individual’s credit history.

Read More  Is Equipment Leasing The Right Choice For You?

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