Marcus Richards
In today’s competitive market, modern commercial businesses need to upgrade their operations by acquiring equipment that facilitates efficient business flow. However, these equipment and tools, especially the latest ones, come with expensive price tags.
The good thing is that there are many equipment funding options that modern businesses can bank on. These can help businesses save for recurring costs and preserve capital reserves. From traditional equipment financing and government and non-profit grants to alternative funding options, we will help you make informed decisions on equipment acquisition strategies.
Traditional Equipment Financing
These equipment financing options have been helping businesses scale over many years. With the following traditional equipment financing options, businesses can avail of some advantages we will discuss in the following sections.
Bank Loans
A bank loan is a popular way to acquire needed equipment for your business. You can borrow a lump sum through bank loans to purchase the equipment upfront. So, to qualify for one, your business must have steady revenue, strong credit history, and set collateral to back the loan.
Here are some advantages and disadvantages of this option so you can make an informed decision.
Advantages
- The business can legally acquire the equipment once the loan is paid.
- You can opt for monthly installments.
- As you repay the loan, you can build your business credit score.
Disadvantages
- Banks conduct thorough credit checks, making the process longer and delaying equipment acquisition.
- Typically, collaterals are required for this type of financing.
- These variable rate loans may significantly affect the total cost of the credit.
- Startups may struggle to qualify since they don’t have established credit profiles.
Equipment Leasing
Equipment leasing is another way to finance business equipment without a hefty upfront investment. It entails renting the needed equipment within a specific timeframe. The main advantages of leasing equipment include capital conservation and potential tax advantages. On the flip side, equipment leasing can cost you more than purchasing the equipment outright.
To weigh your options, here are some leasing structures you can consider.
Operating Leases
With operating leases, businesses can rent equipment, and by the end of the lease term, they can either return the equipment, buy it for its surplus value, or renew the lease.
Capital Leases
With capital leases, the lessee is responsible for the maintenance of the equipment, among other ownership responsibilities. At the end of the lease term, the lessee can purchase the equipment or tool.
Equipment-Specific Financing Programs
You can try equipment-specific financing programs for those who struggle to qualify for traditional loans like bank loans and equipment leasing. This promises unique benefits for helping businesses acquire equipment or tools tailored to a specific industry.
Alternative Funding Sources
Besides the traditional financing options we have already tackled, there are other alternative funding sources you may consider. For those planning for business expansion but finding routes like traditional loans not a good fit, here are some innovative financing options with unique benefits.
Venture Capitalists and Angel Investors
You can bank on venture capitalists and angel investors if you’re a high-potential startup with a sound business plan. These types of investors mainly work on funding for scaling and operations, but equipment financing is another thing they can help with.
If you want their approval, prepare your growth strategies and pitch them to your prospects.
However, you should also consider the potential equity implications. Venture capitalists and angel investors typically ask for equity ownership in an emerging business.
Crowdfunding
Crowdfunding is another revolutionary approach to funding your business equipment. You can use several platforms, like GoFundMe, Indiegogo, and Kickstarter, to ask for funds from potential customers and business enthusiasts, among other willing supporters of your project.
To encourage supporters to back your business through funding your equipment, you can share your campaigns on email, social media, and other relevant channels. In addition, post updates on the progress of the campaign, including the amount of contributions collected.
You may also offer early access to your products, exclusive discounts, and other rewards to willing donors of your campaign. When the target funding is met, post updates on the acquisition of equipment and express your gratitude to everyone who supported the campaign.
Peer-to-Peer Lending (P2P Lending)
If you don’t qualify for traditional loans, you may also borrow directly from individuals or groups through peer-to-peer lending. Compared to traditional loans, the approval process for P2P lending is quicker, allowing you to acquire the needed equipment earlier.
The requirement for this type of lending is a clear repayment plan and the financial health of your business. The interest rates would be based on your business’s creditworthiness, so expect variability of interest rates. While not all lenders would require collateral, it may be better to prepare one so you can secure better interest rates.
Government and Non-Profit Grants
Some government and non-profit grants fund technology and equipment advancement for businesses. If you’re interested in this type of funding, here are some options you can choose from.
Research and Development Grants
With Research and Development grants funded by private entities or the government, businesses are encouraged to create novel solutions through modern technology. Of course, your business should align with the scope of the grant program you are applying for.
In your application, pitch your budget, timeline, methodology, objectives, and expected outcomes. Also, cover how the equipment could improve efficiency and boost your research capabilities in the development and production of a specific product. Include the breakdown of equipment costs like its actual price, installation costs, and training expenses.
Green Technology Grants
If you’re developing eco-friendly solutions, you can avail of green technology grants. With an increased focus on sustainability, the government and some private institutions like foundations and companies offer grants to businesses that emphasize waste-reduction technologies, renewable energy systems, and energy-efficient equipment.
In your proposal, you have to emphasize how the equipment you’re trying to ask for funding can contribute to sustainability. You can also discuss partnerships with the green technology sector, including universities and research institutions, and your combined efforts in conserving resources.
Also, cover how the equipment will contribute to promoting a cleaner environment by using data and projections. This way, you can highlight the expected environmental impact of your products and your business as a whole.
Final Thoughts
By acquiring cutting-edge equipment, businesses can remain competitive in today’s fast-paced business landscape. And by considering one of the funding options we have mentioned here, emerging businesses can cover a wide range of expenses on their equipment and foster innovation and growth as they stay at the forefront of technological advancement.
