Business Funding: Is Equipment Finance Right for Your SME?

Looking for equipment finance to grow your business?

Equipment finance is one of the most common types of business funding.

And if you’re in the market for this form of business funding, you have a few options available to you.

The best type of equipment finance for your business depends on your exact needs.

As part of our Open for Business campaign, we created this blog post to answer your questions about equipment finance and business funding.

In this article, we turn to Lulalend’s business funding specialists to learn more about:

• How equipment finance works
• What to consider when applying for equipment finance

What is equipment finance?

Equipment finance is also known as asset finance. It’s a type of business funding that lets you generate more income for your SME.

And it doesn’t matter which industry you’re in, you’d be able to think of a piece of equipment you could use to grow.

As a manufacturing SME, you could use new equipment for your production line. A mining business might benefit from opencast mining equipment. And SMEs providing professional services could purchase upgraded computer hardware.

So, it’s no surprise this FinFind SMME finance study found equipment was one of the key reasons South African businesses needed business funding.

When you take out equipment finance, you don’t place strain on your cash flow. The alternative is to spend years saving the capital you need to buy the equipment outright, although this approach could result in missed opportunities for your business.

But, how does equipment finance work, exactly?

How does equipment finance work?

There are a few general ways you can structure your equipment finance.

Each of these options presents different implications for your SME’s tax calculations and balance sheet. Explore each one carefully before making a decision.

Equipment rentals

In some cases, the funder will own the equipment, and you’ll rent it from them over a specific time period.

Now, maybe you only need a piece of heavy-duty machinery for one job. In that case, this short-term option makes sense for your SME.

Equipment rentals, however, aren’t the best choice for all businesses.

One disadvantage of equipment rental finance is that terminating your contract early can be expensive, according to this article in Funding Hub.

Heidi Alson, the business funding specialist at Lulalend, said getting finance to buy the asset might be a better fit for some SMEs.

“Instead of paying fees to rent equipment, apply with a lender like Lulalend and own the asset.”

And because alternative funders like Lulalend offer unrestricted finance, you have the freedom to choose how you spend the funds.

“Lulalend’s funding is for any business need, so you’ll be able to buy the equipment from your supplier, according to your terms. We know business owners know their businesses best,” said Alson.

Instalment sale

Some funders will let you finance the purchase of the equipment.

You’ll repay the equipment finance over a set period of time in monthly instalments. Depending on the structure of the business funding, you might need to put down a deposit.

For some equipment financing, you may need to give security. That means the lender might take the equipment as collateral. Or, you might need to attach a personal asset as security.

If you default on your loan, you are giving the lender permission to possess these assets. Review this carefully. On top of that risk, many small business owners often don’t have sufficient assets to put down as collateral.

Business funding for equipment finance

When will you get a return on the equipment you buy?

It depends, said Kaushik Fakir, Lulalend business funding specialist.

“Investing in equipment finance might only pay off months after taking out funding for some businesses. They’ll need to buy the equipment and then look to grow their business using the assets. For others, it’s immediate because they can expand their offering right away.:

For many business owners, fast business funding would be a better pick, added Fakir.

“With Lulalend, you get funding now and only start paying it back after a month.”

Looking for fast business funding?

If you are looking for equipment finance, here are some points to consider:

• Watch out for early repayment penalties. Some funders will charge you for settling your equipment finance loan early
• Study the business agreement for any hidden costs. Do you need to pay monthly account fees or credit insurance?

Finding the right equipment finance for your SME can set your business up for success.

Unsecured business funding from Lulalend might be the right match for your business if you need access to funding fast.

Apply in minutes online and get business funding in your account in 24 hours.