Key Takeaways
- Startups can access equipment financing by demonstrating servicing with a cash flow forecast supported by evidence like purchase orders or contracts.
- Equipment financing is ideal for startups as it provides access to modern equipment without large upfront costs.
- Equipment financing is accessible to startups because the equipment itself serves as security, reducing risk for lenders.
- Equipment financing preserves cash flow by allowing startups to spread the cost of equipment over time.
- Tax benefits may be available, including deductions for interest payments and equipment depreciation.
- Working with an expert broker like Dark Horse Financial can help startups navigate the application process and find the best financing options.
Starting a business is an exciting journey, with both successes and challenges along the way. One of the greatest hurdles startups face is securing funding to purchase equipment. Most businesses require equipment to function and grow. But can startups get equipment financing? The answer is yes—with the right preparation and documentation, startups can access the financing they need.
Let’s explore how startups can secure equipment financing, the requirements for applying, and why this type of funding is an excellent option for new businesses.
What is Equipment Financing for Startups?
Equipment financing is a type of business loan specifically designed to help business owners purchase the equipment they need to operate. This could include anything from machinery, vehicles, and computers to specialised tools and software. For startups, equipment financing is particularly appealing because the equipment itself serves as security for the loan. This reduces the risk for lenders, making it easier for new businesses to secure funding.
Lenders are primarily concerned with the value of the equipment and the business’s ability to repay the loan. This makes it an ideal financing option for startups that may not yet have a long track record or substantial cash reserves.
Why Equipment Financing is Ideal for Startups
1. The Equipment Acts as Security
A startup business loan requires security to lessen the risk for lenders. With equipment finance, the equipment itself serves as the security for the loan. If the business can’t repay, the lender can take possession of the equipment to recover their losses. This reduces the risk for lenders and makes them more willing to work with startups that haven’t been trading for long.
2. Preserves Cash Flow
Startups often operate on tight budgets, and preserving cash flow is important to survival. Equipment financing allows businesses to spread the cost of equipment over time, freeing up capital for other essential expenses like utilities, payroll, marketing, and inventory.
3. Access to Modern Equipment
For many startups, having the latest technology or machinery is essential to staying competitive. Equipment financing enables businesses to acquire high-quality equipment without the upfront cost, ensuring they can operate efficiently and effectively from day one.
4. Tax Benefits
In many cases, equipment financing offers tax advantages. Businesses may be able to deduct the interest paid on the loan, as well as claim depreciation on the equipment, reducing their overall tax liability.
Can Startups Get Equipment Financing? Yes, Here’s How
There are certain requirements for startups applying for business equipment loans. Lenders want to ensure that the startup has the ability to repay the loan, and they’ll typically look for the following:
1. A Deposit
Most lenders will require a deposit, typically ranging from 10% to 20% of the equipment’s total cost. This demonstrates the startup’s commitment and reduces the lender’s risk. For example, if you’re purchasing $100,000 worth of equipment, you may need to provide a
$10,000 to $20,000 deposit.
2. A Cash Flow Forecast
Startups must provide a cash flow forecast that outlines their expected revenue and expenses over a 12 month term. This helps lenders assess the business’s ability to make regular loan payments. The forecast should be realistic and based on solid assumptions.
3. Evidence to Support the Forecast
To strengthen their application, startups should provide evidence to support their cash flow forecast. This could include:
- Purchase Orders: Proof of existing orders from customers.
- Contracts: Signed agreements with clients or suppliers.
- Market Research: Data demonstrating demand for the startup’s products or services.
4. Reasonable Credit Score
While equipment financing is accessible to businesses of all ages, many lenders will still consider credit scores when approving financing. A reasonable credit score of above 550 can improve the chances of approval and may result in more favourable loan terms.
Steps to Apply for Equipment Financing as a Startup
If you’re a startup looking to secure equipment financing, follow these steps to improve your chances of success:
1. Determine Your Equipment Needs
Start by identifying the equipment you need and its cost. Be specific about the make, model, and features, as this will help you determine your borrowing needs.
2. Prepare a Cash Flow Forecast and Proof
Create a detailed cash flow forecast that outlines your expected revenue and expenses. Be sure to include any existing purchase orders, contracts, or other evidence that supports your projections.
3. Contact a Lending Expert
Complete our short form to apply for equipment financing. We’ll streamline the process for you and ensure you can get the equipment you need with no hassle. We can help you with the following:
- Comparison of different lenders and products to ensure you get the best rates
- Customised solutions that fit your cash flow and financial goals
- Submission of your application to your chosen lender
- Quick turnaround times to meet your required timeline
4. Approval and Funding
Once your loan is approved, carefully read through the loan terms. If everything’s in order, sign the loan agreement. You’ll get funding shortly after.
Final Thoughts
Can startups get equipment financing? Absolutely. With a deposit, a solid cash flow forecast, and evidence to support your projections, startups can access the funding they need to purchase essential equipment. Equipment financing is an accessible and flexible option that allows new businesses to preserve cash flow, acquire modern equipment, and grow their operations.
If you’re a startup looking to secure equipment financing, start by assessing your needs. Then, contact us right away to get started. With the right preparation and a strong application, you can unlock the funding you need to move your business forward.
Equipment Financing is Within Reach for Startups
At Dark Horse Financial, we know the ins and outs of startup business loans, including equipment finance. If you need equipment to jump-start your business, our team is here to help.
