The True Cost of Equipment Financing
Equipment financing is a necessary and often misunderstood part of planning for the growth of any company, which is why so many financial companies are out looking for ways to put information about their services front and center. This information can come in the form of rate tables, payment calculators, and other methods of providing rough cost quotes, but unfortunately, they do not tell the whole story about how financing equipment works.
Like any other kind of debt financing, buying and leasing equipment involves knowing your credit rating and the way it will affect your place in the market. Even if you decide to lease, the transaction is still a credit transaction, so your rating will have a huge bearing on the final costs to you. The equipment financing calculators and rate tables online tend to use either average credit ratings for approved loans or the optimal credit rate applied to lenders with the best credit when providing you with estimates, though, and that can make them very inaccurate.
Small businesses tend to have lower credit than their actual health as a business would indicate, and for a variety of reasons. Frequently, it is simply because the company doesn’t have enough debt activity to have established a great credit rating. When that happens, it can appear to banks as if the company is not a good risk for a lease, and that drives the leasing costs up. Similarly, companies that have experienced some debt problems in the past might be quoted more expensive rates even if their current income to debt ratios qualify them for better ones.
Your personal credit rating can be used to influence your equipment financing rates when you have a lack of established credit history, so if you can improve your personal credit rating before applying for a lease or a loan, that’s important. If you want more accurate quotes on equipment leasing costs so you can better understand how much it will cost your company to lease a new machine, you need to be working with a company that can provide you with individualized quotes.
Individualized quotes take longer, but they let you know how much you are actually going to have to spend on your lease. That gives you a better chance to take a look at your potential monthly earnings from the equipment and make better choices about your business. The result is a virtuous circle that helps improve your credit while positioning you to make better decisions about your company’s needs as you move into the future.