Understanding Equipment Finance

Business operations rely heavily on equipment finance for many reasons.

FREMONT, CA: Obtaining business equipment is easier with equipment finance, which refers to loans or leases. A tangible asset may be used as business equipment, for example, office furniture, computer equipment, machines used in manufacturing, and medical equipment.

Understanding Equipment Finance

Business operations rely heavily on equipment finance for many reasons. Startups or early-stage companies may need equipment financing to launch.

Since equipment financing is often used to acquire costly items, the financial commitment incurred is significant. A business owner or executive must consider any equipment finance plan to secure the best possible terms.

Equipment financing can either be obtained through a loan or leasing. Choosing the right financing option will depend on several factors, including your company's credit rating (which impacts the interest rate at which you can borrow money) and the life expectancy of the equipment that will be financed.

Purchasing Equipment with a Loan

The equipment you purchase with a loan serves as collateral for the loan when you obtain it with a loan. Should the borrower default on the loan payments, the lender may take possession of the equipment.

Banks and other lenders may lend up to 100% of the equipment's value if there is substantial collateral to back the loan; however, loans of up to 80 percent of the equipment's value are more common. Borrowers may need to make a significant down payment even with an equipment finance loan.

The owner should carefully assess their financial situation to ensure a business can make loan payments. The option of leasing equipment may be more suitable if they are confident in their ability to keep up with the payments.

Equipment Leasing

It may be more advantageous to lease equipment than to buy it for many reasons. If the borrower does not qualify for or cannot afford a down payment, obtaining a loan for equipment may not be feasible. Secondly, leasing is generally more cost-effective than financing, especially for short-term needs, since it doesn't require a large down payment and doesn't require interest payments.

Leasing may also be considered by businesses or companies depending on the equipment they are seeking to acquire. When financing equipment that quickly becomes obsolete and needs to be replaced, such as computer equipment or vehicles, leasing may be a better option. By leasing equipment this way, you can upgrade your equipment as time passes. It is important to consider the lease terms carefully if that is your plan, such as whether the termination will result in financial penalties.