Pros and Cons of Equipment Loans

Updated: Apr 15, 2021

Equipment loans enable businesses to buy essential work tools. Companies often need to purchase, replace, repair, or upgrade several equipment types to process, manufacture, or produce goods. Equipment can include tools, vehicles (for commercial use), specialized machinery, and industrial appliances.


Since most equipment is costly, businesses need additional capital in the form of loans to purchase them. Here are the advantages and downsides of equipment loans to help you make an informed decision.


Advantages


Quick availability of cash

Most businesses don’t have enough liquid assets or cash to purchase heavy pieces of machinery. Since the equipment is often necessary to ensure a steady production of goods, not having them can cause a tremendous revenue loss—for example, a commercial oven in a restaurant. Fortunately, with equipment loans, you can replace such machinery quickly to minimize potential financial losses.


Spread the cost of your purchase

When taking a loan, a significant concern for business folks is the effect of installments on their cash flow. They need to pay fixed monthly installments for the entire loan period. However, you can spread equipment loan installments over a longer period to address cash flow problems.


No additional collateral

Lenders will always ask you to provide additional collateral for long-term business funding. With equipment loans, you can use the equipment as collateral to considerably lower your defaulting risk.


Boost your revenue

When you have a piece of high-functioning machinery in your production cycle, it is bound to improve your productivity and revenue. This means you can sell more products in less time.


Downsides


You can use the loan amount only for equipment

If you want to cover other business expenses along with the equipment, like payroll or other overhead costs, you will need to arrange additional funds for that. You can use equipment loans only for purchasing, leasing, or renting a piece of equipment.


Higher interest rates

Typically, equipment loans have an average interest rate of about 5 percent. However, you need to have a spotless credit history to be eligible for a low-interest rate. So, if your credit history is not good, think twice before opting for equipment loans.


You own the equipment

When you take an equipment loan, you usually need to own that machinery. But sometimes it is not a good idea to own particular machinery, as its value depreciates quickly. Your business may incur losses because of that. Another alternative is to lease out the required machinery and pay for its use as monthly rent.


About The Cash Eaze Group


If you require financial resources to maintain or expand your business’s working capital, The Cash Eaze group should be your one-stop destination. Our loan approval requirement is minimal and easy to fulfill. Fill out an application form on our website with your requirements, and we will get you the funds you need at the earliest. You can reach out to us at (201) 396-5973 to know more.

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