For small and medium-sized business (SMB) owners, the better you understand the equipment financing world; the better prepared you are to navigate it, especially if you have less-than-perfect credit. At Global Financial & Leasing Services (GFLS), a full-service direct lender, we understand the unique challenges faced by SMBs. Unlike traditional lenders, we look at each applicant’s story, ensuring every application is handled by a direct decision maker.
By using our own capital, we tailor solutions best suited to each applicant, supplying fast, flexible equipment financing to non-investment grade companies. Our equipment-based financing is designed to help businesses who struggle with traditional lending institutions with an approval process based primarily on the applicant’s ability to service their current and proposed debt. As a nationwide lender, GFLS aims to demystify the jargon and provide the clarity you need to obtain financing and grow your business.
Glossary of Common Equipment Financing Terms
Amortization The process of spreading out a loan into a series of fixed payments over time. Each payment covers both interest and principal, reducing the loan balance gradually.
Asset-Based Lending (ABL) A type of financing where the loan is secured by company assets such as equipment, accounts receivable or inventory. This allows SMBs to obtain funding based on their assets’ value.
Balloon Payment A large payment due at the end of a loan term. It is often used in financing agreements where lower payments are made initially, with the bulk of the loan due later.
Capital Lease A lease agreement that allows a business to use equipment while assuming some ownership benefits and obligations. This type of lease often includes an option to purchase the equipment at the end of the term.
Collateral Assets pledged by a borrower to secure a loan. In equipment financing, the equipment itself often serves as collateral.
Credit Score A numerical representation of a borrower’s creditworthiness based on their credit history. SMBs with less-than-perfect credit scores may find it challenging to secure traditional loans but can still qualify for equipment financing with a “story lender” like GFLS.
Debt Service Coverage Ratio (DSCR) A financial metric used by lenders to determine a business’s ability to repay its debt. It is calculated by dividing net operating income by total debt service.
Depreciation The reduction in the value of an asset over time due to wear and tear. Depreciation is a key consideration in equipment financing as it impacts the collateral value.
Direct Lender A financial institution that lends its own money directly to borrowers as opposed to acting as an intermediary. GFLS, as a direct lender, offers streamlined and flexible financing solutions.
Equipment Financing A loan or lease used specifically to purchase business-related equipment. This type of financing allows businesses to acquire necessary equipment without paying the full cost upfront.
Fair Market Value (FMV) The estimated price that equipment would sell for on the open market. FMV is often used to determine lease-end purchase options.
Fixed Rate An interest rate that remains constant throughout the life of the loan, ensuring predictable monthly payments.
Full-Service Lender A lender that provides a comprehensive range of financial services, from loan origination to servicing and collections. Full-service lenders like GFLS offer personalized support throughout the financing process.
Leaseback A financial transaction where a business sells its equipment to a lender and then leases it back. This allows the business to access capital while continuing to use the equipment.
Loan-to-Value Ratio (LTV) The ratio of a loan amount to the value of the collateral securing the loan. A lower LTV indicates less risk for the lender.
Operating Lease A lease agreement where the lessee uses the equipment but does not assume ownership benefits. Operating leases typically have lower monthly payments and are treated as operating expenses.
Principal The original sum of money borrowed in a loan, not including interest. Principal repayment is a key component of loan payments.
Residual Value The estimated value of leased equipment at the end of the lease term. Residual value influences lease payments and purchase options.
Secured Loan A loan backed by collateral. In equipment financing, the equipment being purchased often serves as collateral, reducing the lender’s risk.
Soft Costs Expenses related to equipment purchase but not part of the equipment itself, such as installation, shipping and training. Some lenders may include soft costs in the financing agreement.
Learn more: What are the Soft Costs of Financing Business Equipment?
Underwriting The process lenders use to assess the risk of lending money. Underwriting involves evaluating the borrower’s financial information, credit history and ability to repay the loan.
Variable Rate An interest rate that can fluctuate over the life of the loan based on market conditions. Variable rates can lead to changing monthly payments.
Understanding these terms can help SMB owners make informed decisions about equipment financing. At GFLS, we are committed to providing clear, straightforward information and personalized service to help you achieve your business goals. Whether you need new machinery, vehicles or other equipment, our tailored financing solutions are designed to meet your unique needs, even if traditional lenders have turned you away.
Ready to explore your equipment financing options? Contact GFLS today and let us help you secure the equipment you need to grow your business.