Equipment Financing
Equipment Financing Overview
Equipment financing refers to a loan used to purchase business-related equipment or machinery, such as restaurant equipment, commercial trucks, or construction equipment. These loans provide eriodic payments that include interest and principal over a fixed term.
A considerable number of businesses use equipment financing to replace, upgrade, or purchase new equipment while retaining cash flow and working capital. Lenders typically finance between 80% to 100% of the equipment’s cost.
The loan is self-secured, meaning the equipment serves as collateral, allowing lenders to offer lower interest rates with longer terms.
Key Considerations
The amount you can borrow and the interest rate depend on:
The value of the equipment being purchased
The strength of your loan application
The loan term, which will not exceed the useful life of the equipment
With borrowed capital, businesses can acquire everything from computers to construction machinery without paying the full cost upfront.
Purchase or Lease?
Equipment Purchase
The purchase finance option works like a conventional loan, allowing you to own the equipment outright. This typically requires an upfront down payment and monthly payments until the loan is satisfied.
Benefits of Outright Equipment Purchase
Tax Advantages: Equipment purchases can often be fully deducted in the year they are made under IRS Section 179.
Cons of Outright Equipment Purchase
Higher Monthly Costs: Purchasing may result in higher monthly
payments compared to leasing.
Interest rates are determined by your business or personal credit rating.
.
Equipment Lease
Leasing equipment can be a more cost-effective option, as you pay for the use of the equipment without owning it, resulting in lower monthly payments.
Benefits of Equipment Leasing
Lower Monthly Payments: You pay only for the use of the equipment.
Ability to Trade-up: Flexibility to upgrade to newer equipment at lease end.
Little or No Upfront Cost: Leasing typically does not require a down payment.
Option to Purchase: Buy-out options may be available at the end of the lease
term.
Cons of Equipment Leasing
Fewer Tax Benefits: Leasing offers fewer immediate tax advantages
compared to purchasing.
No Ownership: You do not build equity in the equipment.
Best for Businesses in Need of Equipment
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