Ways to Lower Your Equipment Loan Rate: Practical Tips

Funding purchases of new equipment, automobiles, or tools may be necessary for the expansion of your business, but the interest rate you must pay may greatly affect your budget. Small changes in equipment loan rates may mean thousands saved over the term of your agreement. Of course, as a business owner, you do not have to rely on mere good fortune in terms of securing better rates. The following are some tips on lowering your costs of financing as well as securing the best equipment loan rates for yourself.

1. Strengthen Your Business Credit Profile

The first step to improving your business credit profile is to make sure it is being used by lenders to assess your business’s risk. The better the overall credit profile, the lower the perceived risk to lenders and thus, the more competitive business equipment financing terms.

To improve your business credit profile, simply following the tips below will help:

• Payment history: Pay your business’s existing debts on time.
• Credit utilization: Keep your business’s credit card balances low and under 30% of the available limit.
• Error status: Review business credit reports for errors or inaccuracies and dispute them accordingly.
• Operating credit: Create additional account resources by responsibly using all business credit card accounts.

2. ‍ ‌‍ ‍‌ Shop Around for Multiple Offers

It is a common misconception among business owners that the first loan quote they get should be accepted straight away. However, differences in eligibility requirements, underwriting standards, and pricing among lenders can lead to significant variations in equipment loan rates.

Never commit until you have:

• Obtained formal loan quotes from at least three to five different lenders.
• Compared the interest rates, fees, loan terms, and repayment schedules.
• Inquired whether the rates are fixed or variable.
• Looked at the prepayment penalties and the possibility to pay off the loan early with no or little flexibility.

It is possible to improve your negotiating position and force lenders to match or beat the lowest available equipment loan rates by using the offers from your competitors as a ‍ ‌‍ ‍‌leverage.

3. Establish Loan Terms & Collateral Value

To make you aware, your credit score will not be the only determining factor for equipment loan rates. Moreover, the terms of your agreement will be instrumental in determining equipment loan rates.

Further, here’s how one can negotiate:

• Request shorter terms if your cash flow situation permits. This is because interest rates might be reduced with shorter terms.
• Make sure that the value of your equipment, as determined through appraisal, takes into account the prevailing market rates.
• Evidence of reliability through effective financial reporting and steady income.

4. Use a Down Payment Strategically

Most banks base their rates on LTV ratios; in other words, the amount of money that you put down reduces the risk to the lender. Therefore, positively affects the equipment loan rate. Here are a few ways that having a down payment will impact your future payments:

A down payment of 10-20% can:

• It will reduce your monthly payment amount
• Reduce the total amount of interest you will pay over the duration of your loan
• Increase your chances of getting approved for the equipment loan
• Allow you to qualify for lower rate tiers

5. Select Equipment with Low Depreciation and Strong Resale Potential

Lending institutions will provide you with better lending terms when you look for equipment loan rates that can be secured against and whose value can be recuperated relatively easily, since the lender would perceive a lower risk.

To enhance your ability to obtain a more favorable loan, look for these types of equipment:

• Products from highly reputable manufacturers with established demand in the marketplace.
• Products that lose little value as they age.
• Products that have large, ongoing secondary markets.
• Products that are less likely to be subject to extreme modification or personalization, which could affect the product’s future value.
• Products that can be found in a variety of industries (which makes reselling them easier).

6. Show Business Stability

Predictability is rewarded. By showing that your revenue is predictable, your costs in control, and your cash position is strong, you will demonstrate your ability to repay your lenders, securing you better equipment loan rates. Such measures for ascertaining financial soundness may comprise:

• Providing well-organized financial statements.
• Evidence of contracts entered into with the public must be kept for a lengthy term.
• Providing specifics on increased productivity, profits, as well as other benefits that will come with the equipment.

Conclusion

Although lowering costs of borrowing requires preparation, effort, as well as well-informed strategic decisions, luck will not count. With efforts focused on credit ratings, rate shopping, negotiations, down payments, as well as equipment selection, better equipment loan rates will be achieved. Whether this is the first time you will be procuring equipment loans or will be a big improvement with a business equipment loan, this will give you the ability to optimize profits with low costs as you refinance your high-interest debts into manageable borrowing that will fuel your business growth.