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Why equipment financing can be a good choice for capital purchases


Almost every business needs to invest in equipment at one point or another. Sometimes they will have the cash on hand to make the purchase outright, but in many cases will need to seek finance to move forward.

What is equipment financing?

As the name suggests, equipment financing is borrowing tailored towards purchasing business equipment. Over time, you make repayments against the amount you have borrowed and when you make the final payment, you own the equipment outright. With some types of equipment financing, the equipment itself serves as collateral for the loan – so if you fail to repay, the lender removes the item.

Is equipment financing better than leasing?

An alternative solution is to rent the equipment you need, with the monthly payment probably including servicing (as opposed to warranty terms if you buy the equipment from new). This is somewhat more flexible, as at the end of the term you will probably have the option of renewing the lease or purchasing the equipment outright. Another advantage is that you will probably not need to make a down payment, and leasing may prove easier to obtain than equipment finance. However, there’s a downside: leasing is generally far more expensive, with the cost difference increasing the longer you keep the equipment.

What are your options for financing equipment?

There are a number of routes by which you can finance equipment purchases. The best solution will depend on your credit score, your turnover and spare income, the length of time you have been in business – and of course how much you wish to borrow and over what term.

Equipment loan

Ideal for new businesses needing to broaden their range of equipment, this type of loan uses the equipment itself as the collateral (thus compensating for the company’s lack of credit score). Repayments can stretch from about 36 months to ten years or more, and lenders will generally reach a fairly quick decision.

Bank loan

A traditional bank loan may also be an option if you have an excellent credit score and a stable trading history. The loan can be secured or unsecured, depending on your financial circumstances, and once again the term can be fairly flexible.

Business line of credit

Similar to an overdraft, a line of credit allows you to borrow and repay at will. It’s one of the most flexible tools available to any business, but its flexibility comes at a price: compared to an equipment loan or secured bank loan, you will face much higher interest charges.

Business credit card

As flexible as a line of credit (and probably even more expensive), a corporate credit card allows you to spend what you need and repay whenever you can afford it. If you have a cash back card, you can even earn points that can be converted into money you can use for repayments.

Cash

Finally, if you have cash on hand, you may not need to borrow at all – and you may be able to negotiate a significant discount. However, bear in mind that whilst you will save on interest, this will be scant comfort if you suddenly find yourself facing bills you cannot pay. In other words, always keep a cash cushion on hand to deal with a sudden cash flow crisis.

Cashsolv are the experts in small business finance, and we can find the right solution to purchase the equipment you need. To discover what we can do for you, please click here.

Carl Faulds By Google+ |
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