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At some point in your business, you may need to buy business equipment. However, you may not have sufficient funds to make this often high-dollar purchase. This is where equipment financing or equipment leasing comes in handy.
What is Equipment Financing?
Equipment financing and equipment leasing companies offer business loans to companies that are looking to purchase assets such as vehicles and business equipment that will be used in the business process.
These are specialist lenders who offer loans at reasonable interest rates to enable businesses to purchase necessary equipment.
What is the difference between Equipment Financing and Equipment Leasing?
In equipment financing, you receive an actual business loan to purchase the equipment desired. As such, you or your business will own the equipment outright as its owner. As with any business loan, you will pay the loan principal as well as interest over the life of the loan.
In equipment leasing, you or your business will never actually own the equipment. Your business leases or rents the equipment from its owner, a third party. You will make lease payments plus interest over the life of the contract.
Which is Better – Equipment Financing or Equipment Leasing?
Ownership
In equipment financing, the business purchases and owns the equipment as it makes payments on its loan. As such, the business can add the equipment to its balance sheet as an asset.
In equipment leasing, the business does not own the asset.
Maintenance
In equipment financing, the business owns the equipment and therefore is fully responsible for its repairs and maintenance. This can prove costly but most equipment come with some form of a warranty.
In equipment leasing, the business only rents the equipment and therefore is not responsible for its maintenance. If there is any problem with the equipment, it is the responsibility of the equipment owner to handle any repairs.
The option chosen by the business depends on the financial situation of that business and the goals of the business management team.
What are the Advantages of using Equipment Financing?
Preserve Cash
Business equipment can be very expensive. By using equipment financing companies, you can preserve valuable cash flow as you don’t have to expend a significant amount of cash upfront to acquire the equipment. In this way, you preserve cash that can be invested in other areas of your business.
Flexibility
Unlike traditional banks and traditional lenders, equipment finance companies tend to be very flexible in their loan terms and payment plans. As such, you can negotiate and structure a deal that works best for your business.
Lower Credit Score
Unlike traditional lenders and banks, equipment finance companies are more willing to offer funding to businesses and business owners whose credit scores may not be very high whereas banks generally require credit scores of over 600. In this way, equipment financing is more accessible to a larger number of businesses and business owners.
What documents do you need to submit to apply for Equipment Financing?
Each equipment financing company is different. However, most companies will request minimum information such as:
– The credit score of the business owner or the business depending on the size of the loan requested. If the business is of a considerable size, the credit score of the business owner is less relevant. And if the business has sufficient cash flow, the credit score of the business owner is less relevant.
– Bank statements showing bank transactions for the last 3 to 6 months, and sometimes as much as 12 months. This will tell the equipment financing company whether the business can afford to make the loan payments on the loan.
– If the business has already decided upon the specific piece of equipment that it intends to purchase, the equipment finance company will ask for the details of this equipment. This will enable the company to assign a value to the equipment and therefore determine how much of this value they intend to loan to the company.
What size of a loan can the business receive?
Generally, the equipment financing loan covers 85% to 100% of the cost of the equipment. The loan is secured by the equipment, which is the collateral for the loan.
Let us deliver Equipment Financing to your business. Send us your business information through the Loan Request form here.