If you need specialized equipment for your business, one of the first things you must do is decide whether to lease the equipment or buy it outright. Leasing does have some advantages, such as predictable monthly costs and the opportunity to upgrade your equipment on a regular basis. Despite these benefits, leasing also has disadvantages. If you own your equipment, you can sell it if you decide you no longer need it or if you close your business. With leased equipment, you must keep making payments even if the equipment is sitting unused. If you buy your equipment, you decide when to maintain it, you don't have to fill out much paperwork, and you can even deduct the equipment on your taxes. For those who choose to buy equipment outright, several sources of funding are available. Follow these tips to improve your chances of receiving financing for your next equipment purchase.
1. Build a positive relationship with a local banker. Don't wait until you need financing before you reach out to your business banker. Instead, focus on building a long-term relationship. Once your banker knows you on a personal level, he or she may be more willing to provide assistance when you need funding or have questions about business financing. To build a positive relationship, call your banker directly at least four times per year, even if you do not have any specific funding needs. Show your banker that your business is a worthwhile endeavor by extending an invitation to come to your facility and see how everything works.
2. Look for funding companies that specialize in issuing equipment loans. Getting a loan for business equipment is a lot different than getting a mortgage or taking out a loan to buy a personal vehicle. Working with a financing company that specializes in plastics equipment financing, for example, can speed up the process, as the loan officers at these specialized companies understand the complex issues faced by business owners who rely on expensive equipment to keep their companies running. Your loan officer can answer any questions you have about the financing process and ensure that you receive the best possible terms on your loan.
3. Keep your financial statements current. If a piece of equipment breaks and you need to replace it quickly, you don't want to lose valuable time going through your books and bringing your financial statements up to date. Save time by updating your financial statements each quarter and then reviewing them for accuracy. When you are ready to apply for financing, pull financial statements from the previous year or two so you can show your loan officer how they compare to your current statements.
4. Save as much money as possible for a down payment. Many lenders offer loans that require no down payment, but putting some of your own money down can improve your chances of qualifying for financing. Putting up your own collateral reduces the bank's risk, and it shows that you are serious about your business. If you do not have enough cash to make a large down payment, ask your banker if you can use some of your existing equipment as collateral on a secured loan.
5. Work with a business consultant to draw up a detailed business plan. If you don't already have a written business plan, take the time to put one together before you seek financing. A business plan outlines what your business does and explains how you plan to turn a profit. Major components of a business plan include a description of the business, a detailed analysis of your target customer, an overview of your industry, and a set of financial statements. Your banker may ask for a copy of the plan to determine if your current business model is sustainable.
Purchasing equipment gives you complete control over how the equipment is used, when and how it is maintained, and what you can do with the equipment when it is not in use. Although purchasing equipment outright has many benefits, it also requires you to come up with a large sum of money. If you do not have the cash on hand to make an equipment purchase, contact your local bank or a financing company that specializes in working with business owners.