Equipment finance is a type of commercial loan to buy new business equipment. This financing option allows businesses to buy expensive assets with minimum upfront investment from their side. Most lenders keep such an asset as security against the loan. The term equipment here is not limited to machinery or device only; it can also refer to some tangible assets like a real estate property. The asset purchased this way is for business applications. Devices, property, and other assets used for office, gym, medical, hospitality, mining, and other applications are some examples. The devices can include computers, manufacturing machinery, forklift, bobcat, earthmoving machines, farm implements, commercial vehicles, and others.
Your loan can be approved successfully and faster if you take the help of a brokerage service company like EquipmentLoansOnline. It will first assess your requirements and then draft your loan application properly. The application will be sent to a financing company that is most likely to give you the loan. These services from the brokerage company increase your chance of getting a loan. It has a list of lenders that give this loan. It will match you to the right lender quickly. You not only save time but money as well. The company will handle all paperwork, negotiations, and payments involved in this process. You are left to focus on your business while the loan application process is handled professionally by this company.
Different Finance Options
You have two financing options for equipment. The first option is to take a loan and buy the target item. The second option is to rent or lease that item. While the term equipment finance is mainly used for securing loans, it can also include the rental and lease financing options. In case of a purchase, the business uses the loan to buy the asset which is placed as collateral against the loan. Because renting and leasing options are also popular with businesses, many financing companies offer these solutions as well.
Following is an overview of different financing options.
This financing plan comes with two options. The first is Chattel Mortgage and the second is Cashflow Funding.
With the chattel mortgage, the business owner gets to own the equipment after purchasing it. The lender for loan security gets a mortgage on that item. It is applied through the registered interest. Once the borrower has cleared the loan and complied with all other terms and conditions of borrowing, the lender removes all interests. Now the equipment belongs to the customer. This financing option comes with flexible loan repayment terms ranging from 1-to 10 years. The customer can also add some residual value to lower the monthly loan repayment amount.
In the case of the funding based on cash flow, the borrower uses future cash flow to secure the loan. This financing option works well for businesses that offer their customers the option to make payments within 3 months or more. This plan comes with the benefits of flexible terms, improved cash flow, and quick loan approval.
Finance for Leasing or Renting
Businesses also have the option to get financing for leasing or renting such items.
When an asset is leased, it is the financier that owns it while the business is free to use the equipment for business operations. The business has to pay a fixed monthly payment during the lease term. Once the lease term ends, the customer gets several options. The first is to pay the residual amount and get the ownership of the asset. In the second case, the lease continues if the business opts for refinancing the residual amount. The business owner can also opt to lease new equipment.
The rental option is easy to understand and known to most people. It simply involves renting something by paying rent every month or as per the agreed terms of the rental contract. In this case, the financier buys the equipment and keeps its ownership. The business renting the item can use it after paying the monthly rental amount. The item is returned to the financier/owner after the end of the rental contract. It is an excellent option if you want to keep using the latest devices for your business. Return the outdated model and rent the latest system as and when needed.
The business can renew the rental contract if it wants to continue renting and using the equipment. It can also purchase that item at its market value. A big benefit of a rental contract is that the rented asset does not come under the category of a business asset, so the debt does not appear as a liability on the balance sheet of the business.
Things to Consider
When selecting one of these financing options, a business has to make the right decisions based on several factors. With the loan option, the business becomes the owner of the equipment after clearing the loan. With renting and leasing, the business gets to use the asset up to the rental or lease term. With these two options, you do not face the risk of your device becoming outdated or losing value.
When borrowing a loan, the most appropriate loan plan should be selected. It should match the cash flow with the lifespan of the asset. For example, it is not wise to borrow a 7-year loan for an asset that can be used mainly for five years. Experts of Equipment Loans Online will help you make the right decisions in these matters. You will receive valuable guidance and advice about different financing options.
Equipment Finance Benefits
This financing option is useful for all businesses, from a startup to an established one. It allows new companies to acquire the equipment necessary for their business operations without arranging a large capital upfront. This financing option allows established companies to take up new projects or expand current business operations. It eliminates the need to use any money of the operating capital to buy, rent or lease the necessary asset. You avoid disturbing your cash flow to acquire an expensive asset.
Companies can grow their business by using the latest and better equipment. The latest devices are more energy-efficient and help save energy. It brings down the business’s carbon footprint and improves its reputation in the market as an environment-friendly company.
While equipment finance has all these benefits for business owners, you may still worry if you will be able to borrow a loan or find the lender most suitable for your financing needs. You do not want to end up with a lender that charges very high-interest rates. You can avoid such problems and speed up your financing process by taking the help of a reliable finance brokerage company that specializes in this field. A reputable broker like Equipment Loans Online can help small to large businesses get the best financing deal. The broker will assess your business needs, income sources, and cash flow to determine the most suitable financing option and the lender/financier.