Funding Solutions
Equipment Loans
WHat is an
Equipment Loan?
It is a type of financing that businesses use to acquire the necessary equipment for their operations. It is specifically designed to help businesses purchase or lease equipment, ranging from machinery and vehicles to technology and tools.
The equipment being financed typically serves as collateral for the loan. This means that if the borrower fails to repay the loan, the lender may take possession of the equipment to recover the outstanding amount.
Equipment loans often have fixed terms, and the repayment period is aligned with the expected lifespan of the equipment. Terms can vary, but they generally range from one to five years.
Depending on the jurisdiction, businesses may be eligible for tax benefits related to equipment loans. This can include deductions for interest payments and depreciation.
WHAT IS THE ADVANTAGE OF AN EQUIPMENT LOAN?
By opting for an equipment loan, businesses can preserve their working capital. Rather than paying for equipment upfront, they can spread the cost over time, allowing them to maintain liquidity for other operational needs.
In some regions, businesses may be eligible for tax benefits related to equipment loans. This can include deductions for interest payments and depreciation, providing potential cost savings.
It allows you to upgrade your equipment every 3 to 5 years to the newest model needed for your business, keeping you competitive in your industry.
Funding Options
Loan
An equipment loan is a type of financing where a business borrows money to purchase equipment. The borrower repays the loan in installments, typically with interest, over a specified term. Equipment loans help businesses access what they need without a large upfront cost.
Lease
An equipment lease involves renting equipment for a specified period. The lessor (equipment owner) retains ownership, and the lessee (business) has the right to use the equipment for the lease duration. Most equipment leases include the cost of regular maintenance and repairs in the monthly payments. Depending on the type of lease the lessee may have the option to purchase the equipment at the end of the lease term.
Sale-leaseback
A sale-leaseback is a financial transaction when a company owns their equipment free and clear and needs cash to infuse in their business, they are able to use such equipment as collateral for a loan.
A business sells its owned equipment to a financial institution and then leases it back. The business makes lease payments to the new owner (the financial institution) for continued use of the equipment. In easy words, sale-leaseback involves selling owned equipment and leasing it back.
FAQ’S
Q. HOW CAN I QUALIFY FOR EQUIPMENT FINANCING?
To improve your chances of qualifying for equipment financing, it’s essential to thoroughly prepare and provide accurate and comprehensive information and documents during the application process. Additionally, having accurate information about the equipment as well as vendor is a crucial aspect of the qualification process.
Q. Can I get an equipment loan with bad credit?
Since lenders typically use the equipment being funded as collateral, equipment loans are usually easier to get than a traditional bank loan. Because the lender can rely on the collateral to recover their expenses should the borrower default on the loan, they don’t have to focus on the business or personal credit score.
Q. When is an equipment loan not the best option?
If the business values ownership of the equipment and desires to have the asset on its balance sheet, an equipment loan is a suitable choice. Also, in cases where the equipment needs customization or specific adaptations to suit the business’s unique requirements, owning the equipment through a loan provides the flexibility for modifications.
Additionally, if there are tax benefits associated with owning the equipment, such as depreciation deductions or other tax incentives.
Advantages
Tax benefits to equipment seller/lessees.
Get money for your equipment while you keep using it.
Loans spread equipment costs out over time, making equipment more affordable.
Leasing can eliminate the hassle of managing maintenance and repair costs.
