Every business uses some type of equipment in its daily operations — from point of sale systems to more specialized machinery like tractors, manufacturing equipment or diagnostics machines. Equipment financing loans apply to practically all industries and equipment types. Whether your business is product or service based, having the right equipment is essential to keep everything operating efficiently. Replacing, upgrading, or purchasing equipment for the first time can put a serious dent on your cashflow, but with the right equipment financing, you can get the things your business needs without hurting your bottom line. When you finance your equipment, your cash isn't tied up in the equipment itself. Instead, it's free for other investments that will grow your business, produce income, and ensure the equipment you acquire earns profits.
What is Equipment Financing?
Equipment financing lenders often offer flexible financing terms and do not always require down payments or excellent credit scores for loan approval. Much like auto financing, the purchased equipment typically serves as collateral for the loan. With certain types of equipment financing, the equipment itself serves as collateral so that if you default, the lender assumes ownership. Equipment financing is designed specifically for the purchase of business equipment. Your business makes payments towards what you borrow over time and once the debt is repaid, you own the equipment free and clear.
When you need equipment, you don’t necessarily have to buy it—you could also lease it instead. This means you’re essentially paying the equipment’s owner rent each month just as you would if you were leasing office or retail space for your business. At the end of the lease term, you can choose to renew your agreement or you may even be able to buy the equipment outright. Leasing offers an advantage over financing in that you’re not required to offer any sort of down payment to obtain the equipment the way you might be expected to with a loan. Generally, you’re not bound by any collateral, lien or personal guarantee requirements. It may also be easier to qualify for a leasing arrangement than financing if your business or personal credit are less than stellar.
Why Businesses Use Equipment Financing
Most companies, whether they are investing in machinery or a new technological system, must keep their cash flow flexible while improving their operations flow. Equipment financing is the perfect choice for accomplishing this goal, as it offers many advantages. A loan secured against machinery or technology is referred to as an equipment loan. This sort of financing makes it possible for companies to get the equipment they need. Lenders will often offer a company funding that is secured by the equipment. The company will repay the money, with interest, in monthly payments. When all of the money owed on the loan has been paid back, the business will officially own the machinery.
Leasing and sale-leaseback, two forms of equipment financing, can result in significant tax savings compared to the outright purchase of the asset. This is because leasing an item results in a monthly cost rather than an asset recorded on your balance sheet for that item.
Companies may also benefit from predictable payments and stretch out the expense of the equipment over a longer period of time with most types of equipment financing. That makes cash flow management a little less burdensome for businesses, which frees them up to concentrate on operations. As a result, equipment financing is an excellent instrument for capitalizing on growth, as it provides a flexible method for increasing output using brand-new, cutting-edge technology, machinery, or equipment.
Equipment Financing Options
Equipment leasing and equipment finance are the two forms of equipment financing. Both provide a variety of periods and degrees of commitment based on the equipment companies need.
Applying for an Equipment Loan
Equipment financing gives businesses complete ownership of the financed equipment. On top of the principal sum, they typically make a predetermined monthly interest payment. However, after the financing time expires, they own the equipment in its entirety. When companies use a loan to acquire equipment, the equipment functions as collateral for the loan. The lengths of loans for company equipment usually range from 12 months to ten years. The interest rates vary on the company's or owner’s credit rating, the time in business of the operation, the loan’s term, and the equipment’s capacity to preserve its worth.
The business will possess a valuable item once the loan has been repaid, which is one of the primary advantages of equipment purchase over leasing. If the company needs to borrow money for other objectives, such as business expansion, it can utilize the previously acquired equipment as loan collateral to secure more favorable loan conditions on subsequent financing.
Equipment Leasing
Leasing equipment can be preferable for several reasons. First, it may be easier to obtain than a loan because the terms are less financially demanding. Furthermore, leasing is frequently a less expensive choice, particularly for short-term financing, because it typically does not demand a down payment and does not involve paying a significant amount of interest. The type of equipment to be acquired is a further factor that may influence a company’s decision to lease. Leasing is a far more advantageous choice for businesses seeking to finance equipment that is quickly becoming obsolete and must be replaced. This allows them to lease newer, more advanced equipment over time.
Some leases contain an option to purchase after the lease term. In this scenario, the most obvious decision for a business owner is whether they want to acquire the leased equipment after the lease’s conclusion. With equipment leases, companies pay a monthly lease charge for a specific length of time when leasing equipment. After the lease, they normally have three options:
Return the equipment
Renew the lease
Buy the equipment
Qualification Requirements
Growing your business can be a slow process, but equipment financing can help you pick up the pace. If you’re unsure whether equipment financing is right for you, consider what you stand to gain. For instance, if buying a piece of equipment allows you to cut down on the amount of time required to handle invoicing and payroll each work or adding a new vehicle to your fleet lets you deliver products to your customers faster, your business benefits.
The important thing is to compare your equipment financing options from different lenders before committing to a loan to ensure that you’re getting the best terms for your business. You can get equipment financing quotes for free through Union Commercial Capital, without impacting your credit. If you’re ready to finance your next equipment purchase, then contact Union Commercial Capital today to speak with one of our Funding Specialists.
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