Three ways for new businesses to afford expensive equipment

Updated 5/23/24

You cannot run a successful business without the right tools. But unfortunately, these tools can be costly to acquire in some cases. This is particularly the case in manufacturing, construction, or catering industries, where a single machine can cost thousands to buy.

So how do companies afford this equipment? While some entrepreneurs are lucky to have savings to rely on, many other entrepreneurs end up resorting to other means. 

Let's look at a few of the most popular ways to acquire expensive business equipment. 

Finance equipment through traditional lenders

One popular option is to finance equipment through a lender, like a credit union. This method involves paying a small deposit upfront and then paying the rest of the cost of the equipment in monthly or weekly installments. However, this type of transaction typically requires high-interest fees and good credit to begin. 

If you already have a relationship with your local bank, this process can be pretty straightforward. And it opens up the possibilities of adding new equipment quickly, allowing you to get your business up and running or evolving without delay. One alternative worth exploring is an SBA 7(a) loan. For businesses that need financing options to acquire equipment, the SBA 7(a) loan guide can provide valuable insights into eligibility, terms, and how to start the application process.

The downside is that you could end up paying off the debt for a while, and interest fees could make it much more expensive in the long run than were you to buy the equipment outright. 

To reduce costs and get the best deal, it's worth shopping around for the best loans. Equipment sellers may be able to offer their own financing, but these may not always be better than loan deals you can find independently.

Rent equipment from a reputable company or hire it out

Another solution for affording equipment is to use a rental agency and borrow the equipment for short-term use.

Renting equipment similarly involves paying a small deposit upfront and then paying monthly or weekly payments. However, unlike a loan, you do not own the equipment. As a result, you usually cannot rent bespoke equipment, and you are not allowed to modify the equipment. You also have to keep it in good condition.

The benefit of renting over finance is that terms are usually shorter, and once your rental period is over, you can trade the equipment in for newer equipment. For businesses closely monitoring their finances, especially when investing in equipment, considering where to store their reserves is crucial. An option like a high yield savings account can offer competitive interest rates, helping your business's savings grow over time. This way, funds set aside for large purchases or emergencies work harder for you, easing financial pressures during expansion or equipment acquisition phases.

Hiring is another option typically used for shorter periods and is ideal for single-use equipment. For instance, a construction company may hire a heavy lift crane for a few weeks, or an office may hire a commercial-use printer for a couple of days. Hiring out these types of transactions makes a lot more sense if you're not anticipating needing the equipment for more than a day or two.

Buy used equipment

Instead of purchasing brand new equipment, you could save money by purchasing used equipment. For example, a used commercial oven could be a fraction of the cost of a new one, which may allow your new bakery business to increase production or expand your product line. 

Of course, used equipment may not be in such excellent condition, so thoroughly inspect the equipment and get any warranties in writing. You don't want to save money upfront but continuously pay for repairs. 

Final Thoughts

Starting or growing a business comes with a plethora of decisions and expenses. It's tempting to skimp on tools and equipment to save money, but that's not typically the best long-term solution. Do your homework upfront and ensure you have a strategic plan in place that justifies the new purchase or purchases. 

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