Equipment finance is a commercial loan that provides the necessary funds for buying specialized tools. A lot of companies use it as part of their recovery programs. The idea is to improve the working capital as well as the business cash flow.
How Equipment Finance Works
The lender offers money and uses a piece of equipment as collateral. The fund works best for enterprises that are having challenges finding conventional loan since their equipment is the only asset they can use lien. If they fail to pay the loan, the property may be repossessed by the lender. Common assets that equipment finance caters for include medical monitoring machines, forklifts, construction tools, agricultural machinery, trucks, serves and software, ovens, and manufacturing apparatus.
Features of Equipment Finance
The loan process favours the lender because the monies do not exceed the value of the collateral. The borrower informed about the repayment process and the consequences of defaulting. The other important feature is the loan term.
Typically the loan term runs anywhere from 1 to 7 years. The best term is one that suits the prevailing financial situation. The repayment period may not exceed the economic lifespan of the financed asset. So, the loan is a great option for start-up companies because their working tools are very operational.
No upfront fees are involved in the course. Instead, the borrower gets the money and works hard to settle the debt over the stipulated period. Also, they enjoy the ownership of the equipment while still paying for it.
Who Provides The Loan?
Traditional banks and other financial entities are the main providers. The best source depends on the budget, taxation, and the current financial situation of the borrower. Still, there are other options borrowers can consider.
Alternatives include Hire Purchase, novated lease, finance lease, and business loans. It should be noted that this commercial loan may turn out to be cheaper than traditional financing options.
Factors To Consider When Seeking Equipment Loan
The first and most important factor is the interest rate. This determines the overall amount that the borrower incurs during the loan term. A lower interest rate is thus a favourable option.
Also important to consider is whether the interest rate is fixed or variable. Some lenders offer flexible repayment options. That means one can reschedule the debt settlement routine in a manner that fits into their budget. Not to mention, the fees and other lender charges should be reviewed. You must be aware of all the charges.
Reading the fine print goes a long way in avoiding future conflicts. Any taxation benefit must be established because different assets are evaluated differently during tax time. Every approach offers unique tax benefits. So it is advisable to consult an experienced financial expert to see what would work best.
Advantages of Equipment Loans
Generally, the approval process is very quick. Some non-banking institutions approve the loan the same day of application. This makes it possible to acquire the capital needed to replace or buy a new tool of the trade.
With a flexible payment schedule, the funds help the business to run as usual while making repayments. The borrower is allowed to choose various schedules: annual, biannual, quarterly, monthly, or seasonal. Some lenders may give a deferment period of say 3 months which works in favour of the debtor.
More money at hand keeps the business running smoothly. It means that there’s no need to use the revenue for essential purchases which are hard to acquire upfront. Ultimately, the business remains competitive in the industry.
Drawback
Because there are too many options for equipment finance or some people buy used equipment at low finance fee from cwrresources.com, making a choice is a daunting task. It is advisable to get financial advice from a qualified accountant in pursuit of the best solution.
Final word
A lot of companies cannot afford traditional business loans. Typical financing options take too long to get approved. This may not suit a small business that is looking to repair, replace or refurbish their equipment. Equipment financing seems to be an ideal option.
But it is important to get into an affordable agreement. Before committing to taking the money, one should consider how important the asset is. Companies should be sure of their ability to settle the debt on time.
Any business considering equipment loan must determine how it will work. This calls for a solid business plan. When all of this is understood, then it is possible to position the venture for steady growth.
