What is Equipment Financing and How Can it Help my Business?

 

In today’s market, having the best equipment to fully achieve the highest level satisfaction of your consumers’ needs is an integral part of running a successful business. Everything from industrial and construction, vehicles, data processing equipment, computers, office equipment, and medical devices are all type of functioning equipment that business owners are likely to spend a significant amount of their capital on. But acquiring the latest and greatest equipment can be extremely costly, especially for smaller business owners and those needing to keep up with worlds ever changing technology standards.

The good news is… there are resources available in the form of equipment financing, to tackle this issue.

What is Equipment Financing?

Equipment financing is a method of extending capital to businesses for the purpose of acquiring equipment. Financing methods include equipment leasing, SBA and other government loans, as well as sale-leaseback wherein the collateralized existing equipment to raise cash for additional purchases. In basic terms, equipment financing is the use of a loan or lease to purchase or borrow hard assets for your business. This type of financing can be used to purchase or borrow any physical asset.

Is equipment financing right for your business?

Is equipment financing right for your business? If your business is in a situation similar to any of the ones below, then the answer is, YES:

  • You need expensive equipment for your business, but can’t afford to purchase it up-front
  • You need to replace your equipment frequently because it has a short lifespan
  • You always need the latest in technology, or a combination of the above

Benefits of equipment financing

Debt financing of your equipment, such as computers and other technology that becomes obsolete in a short period of time, allows you to have the present use necessary to grow your business and upgrade quickly to newer technology in order to maintain your competitive advantage. The terms of your financing agreement can be flexible enough to allow you to continuously meet your company’s equipment needs.

Another attractive benefit is the preservation of cash flow compared to conventional financing. A lease can offer low cost financing because the lessor takes advantage of tax benefits that are passed to the lessee in the form of reduced payments.

Keep in mind there are financing options available, such as equipment leasing and it’s very important to know the difference.

Equipment Financing vs. Equipment Leasing

There are some business owners that choose to lease instead of getting an equipment loan. For example, there are definitely advantages with leasing, but with equipment financing, you’ll own that equipment after your loan gets paid off. On the other hand, with a lease, you only get to use that equipment while you’re paying.

So if you know you’ll need that equipment long term, equipment financing could be the right move. But if you’re looking for a temporary solution, a lease might make more sense.

For more information on whether an equipment loan is right for your business contact your banks commercial financing department.