Equipment Financing FAQS
may turn to equipment financing to acquire the implements necessary to run
their enterprise effectively. After
accepting business equipment financing, the liquidity afforded by the
arrangement will enable the business to pursue other functions vital to the
success of their business.
Why should I pursue business equipment financing?
As equipment for businesses is
generally a capital investment, many businesses will view equipment financing
as a means of having the equipment pay for itself. Although this is less cost-effective than
purchasing the equipment outright, small businesses will not always have
sufficient cash flow to justify buying expensive or vital equipment
outright. The liquidity afforded by
equipment financing typically will outweigh the potential drawbacks from paying
interest on equipment financing.
Some business financing providers
will even consider software a type of equipment and will agree to finance that
as well. For many businesses,
specialized software necessary to the operation of the company will cost
thousands of dollars, putting them in the exact situation as businesses that
need equipment financing on tangible equipment that produces the products sold
by the business.
What are the conditions of business equipment financing?
During a business equipment
financing arrangement, the equipment is technically owned by the leasing
company. This means that the financing
is a form of secured debt and failure to meet this debt obligation will enable
the leasing company to retake possession of the item. Continued payment will give the lessor the
right of use to the financed asset and usually leases to own the item eventually. These provisions must be made in advance with
the business equipment financing organization, to ensure the fairness of the
agreement, especially if the lessor intends to own the equipment at the end of
How will the business equipment financing arrangement work?
Depending on the financing
organization chosen, there may or may not be upfront costs or application
fees. The upfront costs may be a
provision that requires some advance payment, such as the first and last
monthly payments that would be paid made in advance.
Expect to be offered a variety of
payment plans, from the conventional monthly payment plan to seasonal,
graduated, deferred or annual payments.
Each of these plans will have its own merits and only the business
requiring the equipment financing will be able to make the best judgment on which
plan offers the optimal level of flexibility for the business. For instance, a business that anticipates
high startup costs and slow cash flow may choose equipment financing with
graduated payments, making low payments at first and eventually making higher
payments. Businesses that have income
that varies through the year, such as seasonal businesses may opt for a
seasonal/skip payment option will allow some payments to be skipped, in
exchange for higher payments made during seasonal peak times.
What equipment can be financed?
Virtually any equipment
imaginable can be financed, depending on the equipment financing firm. This will include all items from medical
equipment to 18 wheel freight trucks.
The firm will have different conditions for lease, depending on the
equipment, such as credit checks or minimum experience using said equipment.