Are you planning to start a new business or you’ve been in business for many years, and you need to get new equipment for a variety of reasons?
Getting an equipment loan might be the right option for you but it is necessary for you to know all the documents that are required to apply for the loan before applying, to know if you are eligible for the loan.
In this article, we will be discussing the documents that are required to apply for an equipment loan. Endeavor to read this article to the end to get all the information you need on this topic.
An equipment loan is a form of financing that enables small business owners to get the equipment and machinery they need to grow their companies when they’re short on cash. Read How Does Personal Loan Work | What is a Personal Loan.
Securing an equipment loan doesn’t require collateral, unlike traditional bank loans which may require you to put up your own property to secure.
This is because if you are unable to repay your debt, however, the lender may repossess the equipment you’ve procured and use it to cover its losses.
Since lenders can repossess your equipment in the event you can’t repay your loan, these financial vehicles are relatively easy for most small business owners to obtain.
- Business plan
- Financial statements
- Accounts receivable and accounts payable
- Purchase or franchise agreement
- Legal documents
1). Business plan: A business plan speaks volumes about your strategy for how you’ll grow and become profitable.
Lenders often require it because they have a vested interest in knowing the details about business operations, the market conditions, and the financial projections you expect to see over time. Details to include in your business plan:
- Target market
- Description of products and services
- Marketing strategy
- Market research into competitors and target customers
- Mission statements
- Current financial picture
- Financial projections, including the break-even point
2). Financial statements: Lenders look at multiple financial statements to evaluate your business’s overall financial situation.
They use these statements to predict whether your business has the ability to repay the loan and to determine the loan amount you qualify for. See How To Get An Auto Equity Loan.
Financial documents you need to have at hand when you are applying:
- Bank statements for a picture of cash flow
- Balance sheet to show assets and liabilities
- Profit and loss statement
- Revenue forecasts
- Personal and business income tax statements from the past three years
- Personal and business credit history
3). Purchase or franchise agreement: If your business was bought from another individual, you will need the business purchase agreement.
This should give information about the buyer and seller as well as what equipment or assets were included in the sale.
It also outlines the responsibilities that the buyer and seller have toward the business after the sale, important if the previous owner will still retain some ownership or employment.
The same thing is applicable, if your business is a franchise, you will need to provide the franchise agreement granting the rights to operate under the franchised brand.
4). Accounts receivable and accounts payable: Equipment loan lenders also need an income statement showing your business’s revenue and expenses.
Seeing all accounts receivable and payable is essential for the lender to understand your current financial position.
5). Appraisal: Depending on the types of equipment or how much equipment you are buying, the lender may want an appraisal to determine the commercial equipment’s true value.
The lender is more likely to require this documentation for used equipment since the valuation will factor in the equipment’s current wear and tear.
6). Legal documents: Finally, lenders will need to see that your business is compliant with registration and licensing requirements to run legally. Documents you may need to provide here include:
- Business entity documents, such as articles of incorporation
- Business licenses
- Commercial lease, if applicable
- Contracts with third parties
- Employer Identification Number
Documents required for an equipment loan are related to other business loans, with the exception of the lender demanding an appraisal for the equipment you are buying.
The major aim of these documents is that they give details of your business’s viability and that the finances that come from it can handle loan repayments for the long term.