You can’t run a business without the proper equipment, a term that defines everything from the computer systems you use to track inventory to the heavy machinery you maintain to move it from one place to another. Unfortunately, those computers and pieces of machinery can be quite expensive if you need to purchase them outright. Fortunately, equipment financing means you probably won’t need to.
Leasing Your Equipment
If your company is newly established or otherwise working with limited funds, you likely don’t have the capital you make a large down payment to purchase machinery or other items necessary to operate. In situations such as these, it will likely be more beneficial for you to lease your equipment. Equipment leasing requires no large payment upfront and often offers flexible terms regarding how much you pay per month and how long your lease lasts. Leasing is especially beneficial for businesses that must update their equipment regularly to stay relevant, since most lenders maintain or replace the items as necessary throughout the duration of the lease. Leasing is a rent-to-own option, so while you are paying for the items, they’ll be in the lenders name, but will transfer to yours upon final payment. However, keep in mind that leases usually require a “balloon” payment as the final payment, which can be 10-20 percent of the total cost of the items. Still, it’s a good choice for up-and-coming companies that expect to be making much more profit down the line.
Applying for an Equipment Loan
If leasing doesn’t feel right for you, you can also apply for a loan as your equipment financing option. Like most other loans, an equipment loan will require you to pay a down payment of about 20 percent of the total worth of the items. A lender will then pay the remaining costs up front, which means the equipment will be in your name from day one. However, you will be responsible for repaying the loan amount in monthly installments and may pay some interest on top of it. As long as you make payments on the agreed-upon dates, your items are yours indefinitely. If you default on payments, though, the lender will repossess them to try to make back some of its losses.
Whether you decide to lease equipment or apply for a loan, one thing is for sure: equipment financing is almost always preferable to purchasing items outright, especially if you require many expensive ones to operate successfully. Your lender will be able to help you decide which option is best for you based on your company’s assets and your personal financial situation.