7 Reasons Why You Should Consider Getting an Equipment Loan
By Matthew Gillman
As a landscaping business owner, investing in the right equipment is crucial to your success. It would be best to have the right tools to get the job done; however, that can often be expensive.
Sometimes it isn’t easy to justify purchasing new equipment when your business is just starting out or when you’re barely making ends meet. This is where an equipment loan comes in handy: you get the capital you need to replace worn-out equipment, repair machinery, or upgrade to more heavy-duty hardware.
Here, we will discuss why you should consider getting equipment financing for your landscaping business.
Equipment financing can provide your business with the funds to purchase new or used equipment. This type of loan can be especially beneficial for companies in the landscaping industry since getting the right equipment is essential for completing projects on time and within budget.
Equipment loans can be used to finance a wide variety of equipment, including vehicles, machinery, and tools.
Why consider getting an equipment loan?
Equipment financing can benefit your business in so many ways.
1. Save money on taxes
Getting an equipment loan can help you save money on your taxes. When you finance your equipment, you can deduct the interest you pay on your loan from your taxes. This reduces your tax liability and keeps more money in your pocket, which you can then use for various purposes.
Section 179 of the IRS Tax Code states that small businesses can write off the full purchase price of the equipment in the year it was purchased. Tax depreciation is valuable to companies because it reduces the amount of taxable income that they report over a certain period. The lower the net income, the smaller the tax liabilities will be incurred.
2. No need for high credit rating
Aside from that, getting an equipment loan is a viable solution for landscaping businesses because you don’t need a high credit rating to secure financing. When traditional lenders like banks and credit unions denied your small business loan application due to bad credit, you can resort to equipment loans. The equipment you wish to purchase or lease already serves as your collateral for the loan. If you fail to make your payments, the lender has the right to seize the equipment.
3. Preserve working capital for other purposes
Also, equipment financing can help you preserve your working capital. By using an equipment loan to finance your purchase, you can free up cash that would otherwise be used to purchase the equipment outright. This cash can be used to market your services, open up a new office, or hire more workers.
Equipment financing is a great option for small businesses, because it allows you to get the equipment you need without tying up all of your working capital.
4. Save more money long-term
Getting an equipment loan can help you save more money than purchasing equipment in monthly installments. This leverages you with early payment discounts, which is available only to those who will pay for their equipment upfront.
5. Attract more customers
Clients prefer to work with landscaping businesses that use the latest equipment. They usually don’t have the patience to wait for your staff to repair your lawnmower when it suddenly stops working. When you purchase new and better equipment for your business, you’re more able to attract customers and retain existing ones.
6. You know exactly what you’ll pay for
By opting for equipment financing, you can take advantage of fixed monthly payments. Even when there’s inflation, you can expect to pay the same amount monthly. This can make budgeting for your small business much easier, as you’ll be able to predict your expenses each month.
7. Make a positive impact on your credit score
Making on-time payments on equipment financing can have a direct positive impact on your credit score. Since equipment loans are one of the fastest alternative financing that small business owners may get, the faster you will be able to record timely payments to your credit report.
Two types of equipment financing you need to know
Equipment financing is not only used for purchasing new equipment. It may also be used to lease equipment, especially if you want to save on costs.
● Equipment loan
An equipment loan is cash borrowed from a lender that should only be used to purchase equipment. Like any traditional term loan, equipment loans need to be repaid over a certain period or term. You may get a higher equipment loan amount at more flexible payment terms and rates, depending on your qualifications. Once you’ve fully paid back your lender, the equipment will be yours.
● Equipment leasing
With equipment leasing, on the other hand, you will be renting the equipment over a specified length of time. You and your lender will negotiate terms and rates and determine your total monthly payments for the equipment.
The beauty of equipment leasing is you can save on purchasing expensive equipment, especially when you need it only for rare occasions. It is ideal for short-term needs, such as fulfilling job orders during high-demand seasons. After that, you can decide whether you’ll lease the equipment for more months or years, return the equipment, or end your term.
Can you get the equipment loan fast?
Many small landscaping businesses are looking to get funds faster to meet customer demands in a short period of time. If you need the equipment as soon as possible, you’ll be glad to know that the application process when applying for an equipment loan takes only around 24 to 48 hours. This is if the equipment you wish to purchase costs less than $200,000.
On the contrary, if your equipment costs more than $200,000, you may know the status of your application within 7 to 14 days. With higher requests for an equipment loan application, the more thorough the underwriting process can be.
Of course, the time it takes for lenders to approve your application depends on a number of factors, such as when all your requirements are complete and verified or when you can show proof of your creditworthiness. On top of that, specific details may vary from lender to lender, so make sure to discuss your needs first before proceeding with the application.
How to know if you’re qualified for an equipment loan
When lenders determine your qualification for an equipment loan, they generally check your credit history to see if you have been paying your suppliers diligently. They also want to see how long you’ve been in business, and what your cash flow statement looks like.
As mentioned earlier, some lenders wouldn’t require you to have a high credit rating since the equipment you will be purchasing already serves as your collateral. However, if you will be purchasing state-of-the-art equipment that costs more than $200,000, it helps to provide a credit report whenever available.
Make the right investment with an equipment loan
With the right equipment loan, you can purchase the equipment your business needs to succeed. Before sending in your application, make sure to discuss your needs with your preferred lender first. They might present you better alternatives to an equipment loan or may offer you better terms and rates.
Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.