Equipment Finance is simply using financial products to acquire the equipment needed for running a business. Many businesses use this form of finance because of the immediate access to funds it gives them. With the funds, companies can acquire the equipment they need or upgrade the old ones and maintain their competitive advantage in the market. Equipment Finance covers a wide range of equipment and tools required in any kind of business; this may include vehicles, machinery, furniture, etc. What equipment finance usually offers that makes it preferable to traditional loans is the low-interest rate.
Types of equipment Finance
Equipment finance products usually come in either of two forms.
- Lease: The lease program for equipment isn’t much different from all other types of leases. The business takes equipment on lease from the leasing company and pay monthly rents to cover the use. The leasing agreement includes how much would be paid monthly and the duration of the lease. A lease gives a business the opportunity to make use of the newest equipment and technology while still maintaining positive cash flow. At the end of a lease, the borrowing business usually has three options – an extension of the lease terms so it can continue using the equipment, ending the lease and returning the equipment to the leasing company, or buying the equipment from the leasing company. The available options are usually stated in the lease contract, so you will know what your options are beforehand.
Loans: The other equipment finance product is an equipment loan. The business can borrow money from the lender to purchase the equipment. The loan is usually secured with the equipment used as collateral. Thus, the business does not have to worry about losing its assets and business without assets can still take advantage of this form of finance. When it comes to equipment Finance, lenders pay more attention to the value of equipment in relation to the term of the loan rather than the credit history of the business.
Benefits of Equipment Finance
Equipment Finance has a lot of advantages when you get the right kind of deal. Such benefits include:
- Increase in working capital: Acquiring a piece of equipment through finance instead of paying upfront means you have more money to use for something else. Many businesses experience cash shortages when they use their working capital to buy equipment.
- Stay up-to-date: With equipment Finance, your business can always get the newest technology whenever you need it. The cost of immediate purchase for State of the art equipment is defrayed.
- Tax benefits: Understanding the tax breaks that you can get through equipment Finance requires a good understanding of tax rules and regulations. This is why you need a tax professional before you get into any business finance contract.
When seeking equipment Finance, the same rules that apply to all borrowing applies. Ensure that you get the best deal with favourable terms and avoid borrowing more than you can pay. If a piece of equipment is insanely expensive, you can look lease options for it. If there is none and such piece of equipment is not essential, it is better not to seek loans for it.