For any business to run smoothly, whether it's a local mom-and-pop store or a large multinational conglomerate, having the right equipment is key to growing your business consistently and unencumbered by technical problems or production bottlenecks.

Fortunately, there are many options open to entrepreneurs who are financially ill-equipped, one of which is business equipment financing. You can borrow money with only a fraction of the money paid upfront. If it's your first time applying for this type of loan, here is a guide to help you get started:

How it Works

So what is equipment financing? Business equipment financing, as the name implies, is a type of loan specifically designed for the purchase of business equipment. Funds are typically used to procure new or used equipment, such as commercial appliances or vehicles.

The equipment itself often serves as the collateral, which means failure to keep up with loan payments can result in the equipment being repossessed by the lender. A common example of equipment financing in action is a new restaurant owner.

Say you needed $100,000 to buy restaurant-grade equipment, such as commercial freezers, food display cases, and walk-in coolers. You apply for equipment financing and get approved for $70,000.

This means you only have to pay $30,000 out of pocket to get the equipment you need while the rest is provided by the bank or private lender who approved your loan request.

Terms and Conditions

The terms and conditions involving this type of small business loan vary based on who is lending you the money. Some lenders may finance 100% of your equipment while others only a percentage.

Repayment will also depend on the lender, with some offering strict loan terms of only a few months while others allowing up to 10 years for repayment. While it's important to get a loan term that you are comfortable with, keep in mind that longer repayment terms means you'll have to pay more in interest charges over time.

Qualifications

First things first, assess your current financial standing. Your creditworthiness, business history, and monthly or annual revenue are the three biggest factors that will determine your eligibility for financing and the terms that come with said financing.

According to Lantern Credit, a low credit score marred by a number of credit card and mortgage delinquencies can hurt your chance of getting approved for a loan. A better credit standing, on the other hand, can give you more competitive loan terms and interest rates.

Application Process

Start by researching and choosing a lender. This can be a local bank, credit union, or online lender. Online marketplaces, like Lantern Credit, can be an invaluable resource for finding the right lender that meets your financial needs and circumstances.

Lantern Credit collects information from other lenders, such as terms and interest rates offered, and allows you to compare them.

The application process may slightly vary from one lender to the next, but you'll likely be asked to provide a similar set of pertinent documents during the application process, such as your business' permits and licenses and personal bank statements.

Finding the right equipment financing can have a huge impact towards your ability to scale your business and capitalize on opportunities as they present themselves, such as seasonal demand and current sales momentum.