Key Factors to Consider When Financing Equipment

When you're ready to upgrade your office or clinical equipment, one of the biggest decisions you'll make it how you'll pay for it. Most businesses finance large ticket items like equipment to free up cash. Here are some factors to consider when deciding between loan sources and terms.

While your first inclination may be to go to your bank, it might not be your best option. For the past several years, banks have tightened up the purse strings on business loans. Unless you are an established business with substantial collateral, many banks may turn you away. Often times banks are not particularly interested in financing a stand-alone piece of equipment, versus a large commercial loan with more income opportunity. 

Another option for business equipment financing is a non-bank finance source. This may be a company your vendor recommends for funding or an organization you've personally had business dealings with before. When considering these sources it's important to realize, as with any product or service, not all loans are created equal.  

When making a decision on what loan is best for you, we encourage you to compare these key factors: 

  • Fees & prepayment penalties. No one likes to carry debt, so what’s the problem with paying a loan off early? With some loans you may be charged a significant early payoff penalty which will increase your overall expense, and therefore increase your effective interest rate. That’s where some loan companies make additional profit. However, there are loan solutions that do not incur large fees or prepayment penalties, so be sure to explore this during the application process.
  • Other hidden fees and auto renewal clauses. It's important to review contracts before you sign. We often compare customers' offers and contracts to our's as part of our Lease/Loan Comparison Hotline and find hidden terms and fees. There are things like auto renewal clauses that allow a company to extend the repayment term if you do not notify them within a specified time frame. These extra payments can really add up.   
  • Rates.  While a factor you certainly will want to consider, do not base a loan decision on the interest rate alone. Other fees and penalties mentioned above can be far more detrimental in the long run.  Don't be misled by interest rates splashed in the media for home or auto loans.  These very low advertised rates are very seldom available for business equipment loans. 
  • Company background. Be sure to work with a company you trust to provide the best terms and service.

If you have questions about whether you are getting the best financing, we invite you to talk to a Professional Solutions Financial Services professional. They can help to ensure you're not paying more than you should in a non-pressure setting over the phone. 

Posted by:
Tony Dickinson

Published in:
Equipment Loans

Dated posted:
Jan . 15, 2015

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Information provided in the Posts & Articles section of the Professional Solutions Financial Services website is designed to educate healthcare professionals and other small business owners and provide tips related to money, credit and financing. Contributors are sharing their expertise and experiences. This does not constitute advice or endorsements by Professional Solutions.

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