The price of office equipment can quickly cut into operating capital, particularly when you’re just starting out. To maintain more cash flow, you may want to consider financing some purchases, especially the larger ones. Also read Financing Equipment with Business Loans for some advice.
Short- and intermediate-term loans can help you get the equipment you need in the door, without a great cash outlay. Although it can be harder to obtain a loan if you’ve yet to build a business credit history, a good personal credit rating, coupled with a well-developed business plan, will help. Additionally, if you have a high percentage of your own equity in the business, your chances of procuring a loan for equipment will improve.
Some business owners finance their initial business equipment with a personal loan. Before applying for any loans, shop around for the best interest rates and acceptable terms. Also, read the loan restrictions carefully.
The Small Business Administration offers a variety of programs that guarantee loans for financing business equipment. Look for the nearest branch office and discuss your equipment needs with them. You may also find equipment loans available through government agencies. Check with your state department of economic development. Typically, when applying for a loan you need to have your credit report (personal or business) available, your financial statements and tax returns for the past three years, and a collateral plan.
A word of caution is in order. If you secure funding to purchase office equipment, lenders expect you to use the money for the stated purpose. If you use the money for other purposes, such as to pay vendors, and the lender finds out, it can jeopardize your chances of obtaining future loans.
Business lines of credit are also an excellent option when it comes to obtaining funds for various business needs, including financing fledgling start-ups through the initial growth stage. If you can’t secure a line of credit through your business, you might have better luck securing one personally. Once your business has a steady cash flow, you can reapply.
While most business lines of credit are asset-based, meaning that hard assets are used as collateral, they can also be based on receivables, or even on inventory. As always, shop around for the best interest rate and read the terms carefully when it comes time to sign. Be sure to read What Is the Advantage of a Secured Line of Credit? for more important insight.
Although financing typically means paying more for an item, it also allows you to put more money into growing and promoting your business, particularly in the early stages. Such loans, when paid on time, also help establish a strong credit rating for future business loans.