Is Equipment Financing Right for Your Party Rental Company?
It’s usually one of the first serious questions any budding entrepreneur is going to ask themselves out of the gate. How does my business acquire the equipment it needs? Should I utilize equipment financing options, or stick it all on my credit card?
For party and event rental companies, the answers to these questions are heavily affected by the overall costs of the equipment they need. Bounce houses cost thousands of dollars each, and party tents can be just as expensive. So for a party rental company just starting out, equipment financing isn’t really an option so much as it’s a necessity.
So just how useful is equipment financing? What types of equipment does it cover? How does all of this work? And is there a “right time” and a “wrong time” for your party rental company to consider small business loans?
What Is Equipment Financing?
Figuring out how to fund your business is one of the heftiest challenges a new small business owner needs to overcome. You can’t buy equipment without money, but you can’t make money without equipment, right? So you find yourself trapped in this infinite “chicken or the egg” mental loop that very quickly degenerates into a feeling of overall helplessness.
So what are the options for equipment financing? The Small Business Administration lists several of them for us, but most of them aren’t very appealing to a small business owner launching a party rental company. They suggest …
- Self funding, where you’re taking out personal loans, asking family and friends to invest in your business, or even using your retirement savings early. That might work for a business model with a smaller capital startup price point, but for a party rental company? Probably not so much. Not to mention the very serious risk of destroying your personal credit in the process of trying to form your new company.
- Venture capital funding, which works well for tech startups and companies considering incorporation early on, but it’s not easy to sell venture capitalists on a party rental company since they won’t get board seats.
- Crowdfunding is perhaps the most famous option, but party rental startups haven’t fared well in this space in the past.
That leaves one feasible option for acquiring the equipment your party rental business needs: small business loans. And as we’re going to discover shortly, there are way more upsides to this funding model than most people probably realize.
How Equipment Financing Works
Every type of business needs some form of equipment. A bakery needs ovens and display cases. An auto repair shop needs power tools. An office setting needs computers and copiers and desk chairs.
For a party rental company, that necessary equipment includes bounce houses, inflatable water slides, party tents, folding tables, and folding chairs. And generally speaking, the costs of this equipment will be pretty high out of the gate. Too high for most people to consider funding such a project themselves, privately.
With equipment financing, a lending institution offers you an equipment loan to buy the equipment outright, rather than leasing it. They effectively retain partial ownership of the equipment for the duration of the loan period. If you default on your payments, they take ownership of that equipment away from you and can resell it to recoup their losses.
So long as you keep up with your monthly payments, you’ll establish business credit and your company’s credit score will improve. This will help you secure other small business loans and equipment financing options in the future.
At the end of your loan period, you’ll fully own the equipment yourself. And if you keep up with your payments throughout the long term loan, or if you pay off the loan early, your business credit will be significantly stronger at the end of the loan period than it was at the start.
Is Equipment Financing a Good Option for a Party Rental Company?
Just how worthwhile are equipment financing options for a party rental company? Well, let’s crunch some numbers and find out.
For our example, we’re going to say you’ll use equipment financing to purchase a bounce house costing $2,500. And for simplicity’s sake, let’s also assume you’re renting out your bounce house for $250 per day (which isn’t too much higher than the national bounce house rental price average).
By this math, you’ll have paid off your bounce house after renting it out a mere ten times. Of course, this example is severely dumbed down—we’re excluding transportation costs, payroll, cleaning supplies, repair items, and more—but you get the general idea.
Party rentals tend to yield a pretty big return on investment, or ROI. Most equipment in our industry pays for itself within ten to twenty rentals, which a great many companies manage in their first year of operation. So the profitability is definitely there … if you can afford that initial investment, that is.
Once equipment financing enters the picture, these numbers begin to vary wildly. Your loan repayment is structured out on time, rather than how many rentals it takes for the equipment to have paid for itself. So if your average term length is 12, 24, or 36 months, you’re only looking at $100 to $300 or so to repay per month, depending on your interest rate and other factors.
Renting out your bounce house once or twice per month would keep you operating in the black. And if the terms of your loan allow for it, you could potentially pay off your equipment financing early, bolstering your business credit score so you can nab even stronger terms on your next loan.
The Best Time to Buy: The Trade Show Stonehenge Effect
Here’s another question you might be asking: is there a “right time” or a “wrong time” to make use of equipment financing options for your party rental company?
The “wrong time,” as much as there is one, depends on how established your company is. If you’re just starting out in the party rental business, your slow season—typically the winter months for a party rental company operating in the United States—might not be an ideal time to invest in equipment. Or at least, that’s the conventional wisdom.
That having been said, that slower season does contain the industry’s trade show season. From IAAPA in November to the big ARA show in February, the winter months are jam packed with all sorts of trade shows big and small. And most companies, Tent and Table included, save their biggest and best sales for this period.
For us, IAAPA is like Black Friday or Cyber Monday; all of our prices are the lowest they’ll be at any point throughout a given year. And if you can visit our booth during the show, the sales skip into ludicrous mode.
Couple those sale prices with equipment financing options, some of which feature zero percent financing, and you’re suddenly unlocking the trade show Stonehenge effect. The stars align just right and our prices begin to ominously glow.
Equipment Financing Helps Your Party Rental Company Thrive
Once you’ve researched various online lenders, shopped around to find the right deals, and finally purchased your equipment, your party rental company will finally feel less like a dream and more like a tangible byproduct of your imagination. And after you’ve booked your first birthday party, wedding, fundraiser, or corporate event, you’ll get to basque in the glorious feeling of having successfully launched your very own new company.
But heavy is the head that wears the crown. You’re going to encounter unusually slow periods. You’re going to make mistakes (click here to learn how to avoid the most common party rental company mistakes). It’s part and parcel for every entrepreneur.
That’s not said to discourage you, so much as prepare you for the eventuality of those aforementioned setbacks. They happen to everyone. So be sure you take the time to understand all of these equipment financing terms fully, and ask about anything you aren’t entirely certain about. Never go into an equipment financing arrangement with questions looming.
If you’re patient, thoughtful, and committed to doing your due diligence, equipment financing and small business loans can provide your party rental company with critical strategic advantages. If you’d like to learn how Tent and Table’s financing partners can help your company grow, call us at 1-716-832-8368 and we’ll gladly help you out!