9 Common Misconceptions About Equipment Financing
Your business is ready to grow and offer bigger and better services. The only problem? You need more or upgraded equipment. Worse still, you don’t have the capital available to purchase the equipment outright. This is where independent equipment financing can save the day. Keep reading to find out everything you need to know to grow your business.
What Is Equipment Financing?
Equipment financing is financing designed for the express purpose of purchasing business equipment. It allows your business to purchase equipment that may have been out of your reach otherwise. Your business makes payments towards what you owe on the financing until the debt is fully repaid. Once that happens, you own the equipment for good.
Keep in mind that you may not fully own the equipment until the debt is paid, as some forms of equipment financing use the equipment as collateral if you default on your payments.
How Does Equipment Financing Work?
To understand equipment financing, you also have to understand equipment leasing. When you lease a piece of equipment, you rent it the same way you would rent an apartment. You have a right to use it, but it’s not yours to keep. When you reach the end of the lease agreement, you can renew the lease and continue using the equipment or terminate the contract and lose the equipment. Equipment financing is more like taking out a mortgage on a house. It allows you to buy the equipment outright, but it’s not 100% yours until your debt to your lender is paid off.
Before you start the process of finding equipment leasing, you need to ask yourself a few simple questions.
First, what is your monthly budget? How much space do you have in your budget to accommodate new equipment? Financing can certainly make equipment more affordable, but if you can’t afford to pay for financing either, you may not be ready to expand.
Second, how long will the equipment be used? If you need it to take on recurring projects, you’d be better served by equipment financing that sets you up with equipment for the long term.
Where to Find Equipment Financing
You can obtain equipment financing from most places that you can get a loan. You can get financing from a bank or credit union, but you can also get it from specialized lenders, like equipment manufacturers or supply companies.
There are three main types of equipment financing:
- Equipment leasing
- Equipment loans
- Small business loans
It’s important to look at the type of equipment you need to determine your route of financing. You also need to know whether you’re going to update regularly or buy something that will last for many years. This will help you narrow down your funding options and choose a funding source. Once you select a few options to investigate further, make sure to read the terms of their financing carefully.
Equipment leasing is the best option if you need to update your equipment regularly. If the equipment has to change every few years, you’ll waste more money by buying and selling equipment.
Leases are rentals with an option to buy, which means they’re much shorter than a loan and have much greater room to negotiate.
It can also allow you more wiggle room to purchase equipment later—some lease contracts give you the option of buying the equipment at a reduced rate when your lease expires.
And if you need to return the equipment early, you don’t have to worry about selling it. You can simply return it to the leasing company (though you will likely have to pay an early termination fee).
Keep in mind, however, that some equipment is more expensive to lease in the long run, even if the purchase cost is initially higher.
Benefits of Equipment Leasing
Equipment leasing has a variety of benefits over taking out a loan.
First of all, you get to control (and conserve) your cash flow. This is especially important for young companies that don’t have the means to support major equipment purchases. Instead, you can lease equipment when you need it and return it when your project is completed.
Second, you can update your equipment anytime you like. Leasing companies are in the business of keeping their customers (you) happy, which means that good leasing companies stay up-to-date on the latest equipment. And that means that you don’t have to worry about upgrading your inventory.
Third, leasing gives you a more attractive balance sheet. Loans are viewed as long-term debt, whereas leasing expenses are treated as business expenses.
How to Choose an Equipment Leasing Company
You know you need a leasing company. The question is, how do you find the right equipment leasing company?
Start by doing your homework on what you need. That will give you a better idea of what to look for in a leasing company.
For example, some companies specialize in certain types of equipment over others. If you’re looking to establish a long-term partnership, look for a company that specializes in the equipment you need.
You should also look into the company itself. How old is it? What is its reputation in the industry? Does the sales team know what they’re doing?
Once you’ve narrowed down the list, you can look at leasing options at each individual company until you find rates that match your budget.
Do You Need Equipment Financing?
If you need independent equipment financing, you’ve come to the right place. We’re proud to put our experience and expertise to work for you so that you can make your business better than ever.
Click here to request a quote.