Equipment Financing – How IT works, Types, Advantages and Disadvantages

Every business, from the bakery down the street to the manufacturing giant across town, relies on equipment to function. But for many businesses, especially those that are just dipping their feet into the world of businesses, getting necessary equipment can create a huge dent on financing.

This is where equipment financing steps in, helping businesses to get the required equipment to meet their needs. Jed Anthony Ariens believes equipment is like a life-saver. If you need to upgrade machines or acquire cutting-edge equipment and you can’t afford them, going the equipment financing way is the sure bet.

“This will help you to free up capital for other runnings in the businesses. Getting equipment shouldn’t be that hard especially when you choose the right equipment loan in your arsenal;” says Jed.

Financial expert, Jed Anthony Ariens explores everything you need to know about equipment financing including the benefits and drawbacks for you to make the right decisions.

What is Equipment Financing?

“Equipment financing is a financial tool that allows businesses to acquire essential equipment without using up their working capital. This is done by partnering with a lender, such as a bank or specialised financing company,” Jed Anthony Ariens explains.

What are the Types of Equipment Financing?

Loan

The lender provides the funds to purchase the equipment you need, and you repay the loan (plus interest and fees) over a set timeframe. The business then repays the loan, plus interest and any fees, over a set period. This means that the equipment serves as collateral for the loan, if you default in repayment, the lender can repossess the equipment.

Leases

Another way is that businesses can opt for an equipment lease. This involves renting the equipment from the lender for a predetermined term with the option to purchase it at the end.

What Can Be Bought with Equipment Financing?

Equipment financing goes beyond the typical office furniture or computers. It can be used to acquire a wide range of tangible assets crucial for business operations. Here is how you can put your tangible assets to good use:

• Manufacturing and Industrial Equipment: From heavy machinery like 3D printers to assembly line tools, equipment financing allows manufacturers to invest in machines that boost productions.
• Construction Equipment: equipment financing can be used to buy heavy machinery like Bulldozers, excavators, and cranes.
• Technology and Telecom Equipment: Financing allows you to upgrade and expand to cutting-edge servers, data storage solutions, and network infrastructure
• Medical Equipment: deliver high-quality care by financing advanced diagnostic tools, patient monitoring systems, and many more.
• Transportation Equipment: from delivery trucks, fleet vehicles, to even refrigerated trucks, financing becomes a breeze.
• Restaurant Equipment: Industrial ovens, refrigerators, freezers, and specialised cooking equipment are few of the things that can be financed to make cooking easy.
• Fitness Equipment: Acquire state-of-the-art exercise machines and free weights through financing.

When it comes to what you can get with equipment financing, the list is endless as long as the equipment is a tangible asset.

Benefits of Equipment Financing

Jed Anthony Ariens says there are several reasons why equipment financing has become a popular choice among businesses of all size:

• Preserves Cash Flow: you don’t have to dig up upfront expenses with financing, as getting heavy equipment has been made easy. This allows you to free up capital required for running day-to-day expenses.
• Helps Predict Payments: Equipment financing typically comes with fixed monthly payments. Hence, budgeting is simplified
• Access to Cutting-Edge Technology: you gain easy access to the latest and newest technology which allows you to stay ahead of the curve in the highly competitive business world.
• Provides Tax Advantages: In some cases, businesses can benefit from tax deductions on the interest paid on equipment loans. However, always seek for tax professionals help to understand the tax implications.

What are Drawbacks of Equipment Financing?

Financing equipment also come with its own disadvantages, this include:

• Higher Payment Cost: you have the interest rates to pay on top of the actual cost, this means you would highly be paying higher in the long-run than if you buy it outright.
• Equipment can Become Obsolete: Another potential disadvantage is the risk of the equipment becoming obsolete before completing the financing. Technology is ever-evolving and advancing. You might find yourself stuck with an equipment that is outdated.
• Strict Terms and Conditions: financing agreements often come with strict terms and conditions. Failure to meet these terms, such as missing payments or improperly caring for the equipment, could result in penalties, fees, or even the repossession of the equipment by the lender.

What are the Things to Consider in Equipment Financing?

While equipment financing offers numerous benefits, there are some key factors to consider before diving in:

• Loan vs. Lease: you need to know what the owner preferred, the expected lifespan of the equipment and the tax implications before choosing between loan and lease.
• Interest Rates and Fees: check out different lenders in order to compare interest rates and choose the right one for your businesses. Inherited rates most times boils down to the lender and the amount you borrowed.
• Impact on Credit Score: Equipment financing can impact your business credit score. You want to ensure your business has a good credit history and can maintain consistent payments.

Final words

Equipment financing is a powerful tool that can help businesses to acquire the tools they need to grow and thrive in the business world. By understanding the different types of financing available, the benefits it offers, and the key things to consider, businesses can make informed decisions perfect for your business needs.