Do you need to purchase expensive equipment for your small business but need more capital? You’ve probably investigated Equipment Financing Companies, hoping they could provide an answer. But let me warn you – only some things you hear from these equipment leasing lenders are true. There are deceptive claims and significant gaps in the information equipment financing companies provide about business equipment financing. Depending on which company you use, you might pay more than double the initial cost of the equipment! In this article, I’ll discuss 7 Lies Equipment Financing Companies Tell You and how to protect yourself before signing a contract. Table of Contents hide Lie #1 We have the lowest interest rates. Lie #2 Heavy equipment financing at $2300 per month for $100,000 machinery Lie #3 No credit check is needed for financing. Lie #4 The interest rate won’t change. Lie #5 There are no hidden fees. Lie #6 You own the equipment at the end. Lie #7 Leasing is always better than renting. FAQs Lie #1 We have the lowest interest rates. It’s common for leasing firms to quote bogus rates to business owners for heavy equipment financings, such as 4.9% or 5%. When finding the best rate for equipment financing, it is essential to know that all companies claim to have the lowest interest rates. However, many people need to realize that each company’s interest rate is based on various factors. Factors that Affect Interest Rates The interest rate for equipment financing is determined by various factors, including: the type of equipment financed, the amount of money borrowed, and the borrower’s credit score. Credit Score Your credit or FICO score is one of the most critical factors in determining your interest rate. A higher credit score will typically result in a lower interest rate due to perceived financial strength. Check your credit reports and scores before applying for financing to make sure you are getting the best rate possible. We Can Get You Approved Quickly. Many equipment financing companies advertise that they can get you approved quickly for equipment loans. While this may be true, it is essential to remember that the approval process still takes time and requires the borrower to provide all necessary documentation. Some lenders may require additional information or documents before approving your loan. The underwriting differences mean that not all companies will offer you the same rate, and you should get quotes from multiple companies to ensure you get an accurate estimate. The bottom line is that many options are available if you are looking for a low-interest rate on equipment financing. Just be sure to research and find a company that meets your specific needs. Lie #2 Heavy equipment financing at $2300 per month for $100,000 machinery Again, this is another outright lie because most businesses won’t qualify for financing at that rate. Your credit score and your years in business directly impact the final monthly installment. And the funding for low credit and high credit scores varies significantly. Realistically, you might pay upwards of $3000 per month for a $100,000 loan. Lie #3 No credit check is needed for financing. In reality, most equipment financing companies will require a credit check. Your credit score and history are among the most critical factors in determining your interest rate, and a higher credit score will typically result in a lower interest rate. Check your credit reports and scores before applying for financing to make sure you are getting the best rate possible. Lie #4 The interest rate won’t change. This statement is not accurate. Interest rates can and do change over time, and the rate you’re getting today may differ from the rate you are getting in the future. Equipment financing companies may try to lock you into a rate for the duration of the loan, but you should always read the fine print to ensure that the rate won’t change unexpectedly. Lie #5 There are no hidden fees. Companies offering this type of financing perpetuate many myths about equipment financing. One of the most common is that there are no hidden fees. The truth is that there are always fees associated with equipment financing, and you need to research to find out exactly what those fees and extraneous costs are. Most companies will charge various fees, such as origination, processing, fees for insurance, and late payment fees. Be sure to ask about all of these fees before signing any paperwork. The actual cost of equipment financing is sometimes a secret upfront, which means you may pay more interest and penalties than you would have if you had bought the equipment outright. It’s essential to do your homework before getting involved in equipment financing to make an informed decision. Lie #6 You own the equipment at the end. Many companies will tell you that you are the equipment owner when you finance it through them. While this might seem a good deal, it isn’t necessarily true. Somewhere hidden in the agreement, there might be something called a residual or a 10% put. That means you might have to pay 10% of the total financing after your last piece of equipment actually to own the equipment. Lie #7 Leasing is always better than renting. This difference is only sometimes the case with leasing equipment. Some rental companies offer attractive rental purchase options (RPOs) contracts that favor the renter. For example, the rent you pay may buy the equity in the equipment, and it’s like getting an interest-free loan. Do your research for alternatives to equipment leasing. FAQs How much does it cost to finance heavy equipment? When it comes to heavy equipment financing, one of the most common questions is how much it will cost. Unfortunately, some equipment financing companies don’t always tell you the truth. They often say that the rates are fixed or will never change, which is only sometimes valid. What these companies typically mean when they say “fixed rate” is that there isn’t any additional interest or fees to be paid at the end. However, there may still be additional costs for insurance and installation paperwork, which can add up quickly. You’ll also need to consider taxes since you may have to pay state or federal taxes depending on where you live. Finally, consider attached fees such as dealer markups, processing, and administrative costs. Again, make sure you get all the facts before signing any contracts for heavy equipment financing! Is it better to lease or do a heavy equipment loan? Both options have pros and cons when deciding between a lease or a loan for your heavy equipment. To make the right decision, you’ll need to weigh the financial implications of each carefully. The most significant advantage of leasing is that it will often provide smaller upfront costs in the form of lower security deposits and initial monthly payments. Additionally, if your business features seasonal nature, such as agricultural businesses, leases may provide flexibility when you only use the equipment seasonally or plan on upgrading shortly. That said, leasing has potential downsides, especially if you choose a longer-term lease since you could be stuck with outdated technology for years. On the other hand, an equipment loan can offer more ownership over the equipment since you are financing it through your capital sources or financial partners. Moreover, having complete control over what type of equipment (and, therefore, its capabilities) you can help guarantee that everything runs smoothly and efficiently within your business operations. However, getting an equipment loan means higher upfront costs due to longer maturities and higher interest rates than a leased deal would provide. At the end of the day, whether you choose a lease or a heavy equipment loan depends on your unique business needs— beyond cost savings— so do your research before making any decisions! Is equipment financing right for your business? If you need to figure out if equipment financing is the right choice for your business, it’s OK to take a step back and consider a few key factors. First of all, how much money do you need? Is the cost of the equipment within your budget? Will leasing or purchasing be more beneficial financially in the long run? You should also ask yourself if you can use equipment financing to leverage your profits. For example, can the new equipment help you increase efficiency or reduce overhead costs so that your total profit will be greater than the initial investment? Equipment financing is sometimes the best option, so consider your options before signing any contracts. And if something seems wrong, feel free to negotiate better terms or look for alternative funding sources. What are typical terms for equipment financing? When it comes to equipment financing, typical terms can vary significantly. While some lenders offer short-term loans with no interest at all, others offer long-term loans with interest rates in the double digits. Most lenders will provide competitive rates and flexible payment plans and offer lengths ranging from a couple of months up to 10 years or longer. Aside from the loan terms, you’ll also need to consider what assets are eligible for financing (generally forklifts, industrial machinery, or vehicles) and any additional purchasing costs. You should also be aware that to obtain approval on a loan application, you may have to provide financial information such as tax returns and bank statements. Equipment finance companies may tell you that their terms are better than those offered by competitors but beware: Always read the fine print before committing to any equipment financing agreement! How does equipment lease financing work? Equipment lease financing is relatively straightforward, enabling you to get the necessary equipment without making a significant upfront investment. Essentially, the equipment leasing company acts as a lender, buys your equipment for you, then leases it back to you. Lease payments can be spread out over time, allowing you to make manageable monthly or quarterly payments. How it works varies from provider to provider but generally involves four steps: applying for the loan, approval of the loan, delivery, and installation of your equipment, and making payments on your lease agreement. In some cases, additional fees may apply for optional services like insurance or repairs, so read the fine print of any contract before signing on the dotted line! How does Sunwise Capital work? There is no way to run a company, much less turn a profit, without high-quality, cutting-edge machinery. However, due to the high equipment cost, you are apprehensive about using your available funds. Financing options from Sunwise Capital mean you don’t have to make do with broken or old machinery. Financing up to 100% of the equipment’s price is available at highly reasonable interest rates, with no down payment required and convenient monthly payment options. Ssunwise Capital equipment finance makes it simple to keep your business going, whether you’re a builder, gardener, restaurant owner, or provider of B2B services. Sunwise Capital can help you with equipment financing. You can acquire the necessary equipment without having to use your savings. QUICK AND ECONOMICAL EQUIPMENT FINANCING: Professionally-competitive Fee Structures Lease Term in as little as 24 hours; you can get approved for funding for up to 60 months. Minimum Requirments: Equipment Lease Application Provide Equipment Invoice Three-plus years in business Annual Revenue $250,000 minimum Credit Score 675 Loan Amount $150,000 meeting the above requirements What financing option is there instead of equipment purchase? Rather than purchasing equipment outright, several financing options offer the benefits of owning your equipment without taking on all the risk. Here are some of the most popular financing options to consider: 1. Leasing – Rather than purchasing equipment, you would make payments to use it over a fixed period. You can return the equipment at the end of your lease or buy it at a pre-determined price. 2. Small Business Administration – SBA Loan – This loan will allow you to borrow up to $5 million for various business needs, including equipment purchases and upgrades. You can speak directly to a Sunwise Capital funding specialist about working with an SBA lender. 3. Personal Loans – For smaller ticket items like computers and other office supplies, you may qualify for personal loans from a bank or credit union to cover the costs without going through business lending criteria. 4. Vendor Financing – Equipment manufacturers often have financing programs that allow you to get the tools and technology you need without tying up your cash reserves and putting a strain on your current operations. 5. Merchant Cash Advance – This type of financing is ideal for businesses that accept credit cards as payment. The lender will advance you a lump sum of money in exchange for a percentage of your future credit card sales. This option best suits businesses with high volume and consistent cash flow. The MCA is more expensive than a term loan and has a shorter repayment term. However, there are no credit requirements (bad credit is OK) or collateralization of equipment. 6. Working Capital – One lie that equipment financing companies tell you is that you need to have a lot of working capital on hand if you want to lease equipment for your business. However, this is only sometimes true. Sure, having a large reserve of ready cash helps, but many companies can get their hands on the necessary equipment without having loads of money upfront just sitting in the bank. It would help if you had positive cash flow. There are a few creative financing options for small businesses that may need more working capital or funds for leasing equipment today. Options like a business line of credit spending and balloon payments can work well if structured correctly. These solutions allow entrepreneurs to get their businesses up and running with less hassle and cost than what other lenders might offer. 7. Small Business Loans – Small business loans are desirable because they can help you get the necessary equipment to build and grow your business. Unfortunately, many lies get told by dishonest equipment financing companies that can leave small business owners in a financial bind. One of the most common lies is that applying for a loan isn’t easy, and you won’t be approved quickly. In some cases, this may be true, but it should never be taken for granted or assumed. The truth is that the loan application from Sunwise Capital is one page and requires the last three months of business bank statements. It’s true that some loans require lots of paperwork and can take weeks or months to process. As a business owner, you should always be prepared for the application process to take longer than expected. Another lie often told about small business loans is that the interest rates and repayment terms are flexible when, in fact, they’re not! Banks offering small business loans typically have particular criteria for who qualifies for business funding and what terms they provide. It’s important to do your due diligence before applying to ensure a company offering equipment financing isn’t just telling you what you want to hear to secure the funding. So while it may be convenient––and profitable––for equipment lenders to suggest otherwise, don’t let them convince you that having lots of working capital should keep you from leasing the equipment your business needs right now! Regardless of your financing option, there is one thing to remember when seeking business financing above all else; always read the fine print!
