Equipment Financing for Small Business Owners

Articles Posted By TW

  • November 07, 2020

Each and every business needs equipment – whether it is construction machinery, computers, office furniture or vehicles. No matter how large and well-established your business is, having the capital for adding new equipment to operate effectively and efficiently may be something that is cost prohibitive. This is where equipment financing and equipment leasing helps you acquire the equipment you need while saving your capital for other important expenditures.

What is Equipment Financing and Equipment Leasing?

Equipment Financing:

Equipment financing is also known as equipment loan, your lender will forward you or the equipment supplier the funds to buy the equipment. The amount of money you can borrow is largely dependent on the kind of equipment you require. Once you have repaid the loan amount with the interest, you get complete ownership of the equipment by way of the lien or security removed by the lender.

Equipment Leasing:

Equipment leasing is where the financing company buys the equipment on your behalf and rents or leases it out to you. The payment terms are typically a fixed monthly payment over a fixed term dependent on you and your organizations creditworthiness. Depending on the structure of the lease contract, at the end of them there can be a nominal purchase option (i.e. $1.00) were you assume ownership or there can be higher residual such as 20%

Benefits of Equipment Financing and Leasing

Even if you have the luxury of extra cash reserves, consider these five equipment financing & leasing benefits before writing a big check.

SAVE CAPITAL

Let's face it; most of us don't have extra cash reserves. If we do, there are plenty of other ways to use it, like hiring new employees, stocking more inventory or expanding a facility. Avoid the sinkhole of obsolescence: Should you pay cash for technology and equipment that will change in a few years? At the end of a lease, you can return the equipment and get something more advanced, or buy the equipment if you choose.

Manage Your Risks

Investing in a major capital asset is a huge undertaking that can leave you with serious uncertainty; especially if your business is new or still growing. Not knowing what will be around the next corner can leave you insecure about the prospect of spending money when you don’t have to. Keep your cash in the bank and use equipment financing to acquire the equipment you need. Pay for the equipment as you earn revenue from its use.

REMAIN FLEXIBLE

A purchase commits you to one particular technology or business strategy. This is especially relevant for purchases that involve your core business offerings. While you might be able to live with aging printers or copiers, if you're a healthcare company that invested in machines for therapy protocols that are no longer in demand, your business could be at stake. By using equipment leasing you can adapt as your industry evolves for the technology and equipment you need.

GAIN PREDICTABILITY

Some investments—like complex technology implementations—involve unpredictable costs. An equipment lease gives you fixed, predictable monthly payments that are spread out over time. This means fewer surprises and better cash flow management.

Purchasing vs. Leasing (Equipment Financing)

When it comes to deciding between a lease and an outright purchase, focus on the particular piece of equipment you're looking to obtain as well as cash flow. If the equipment you need has a short shelf life such as 2 to 6 years, consider leasing.

When deciding whether to buy or lease a particular piece of business equipment, try to figure out the approximate net cost of that asset. Be sure to factor in maintenance, tax credits and resale value when making this calculation.

After determining which option is more cost-effective, consider other intangibles such as the possibility that the product will become obsolete (if you are considering purchasing) or that your need for the product will expire before the lease does (if you are considering leasing).

Lessee Responsibilities

  • Taxes and Fees

The Lessee would have to to pay all applicable taxes and fees during the Term, and to potentially provide any relevant paperwork about these payments to the Lessor.

Insurance

During the Term, the Lessee must get insurance on the Equipment and give a copy of any proof of that insurance to the Lessor. The insurance should cover any loss or damage to the Equipment, and also any risk of harm to the general public by the Equipment. 

Responsibility for Care and Maintenance of Equipment

The Lessee must:

  1. Keep the Equipment in good condition, and make any repairs and replacements at its own expense;
  2.  Make sure the Equipment is used only by competent employees;
  3. Use the Equipment carefully and properly;
  4. Keep the Equipment at the agreed-on location, and not remove it without the Lessor’s consent. This location will usually be the Lessee’s place of business, but the Parties can agree on another place;
  • Return of Equipment

 

At the end of the Term, the Lessee must return the Equipment at its own expense, unless it renews the Lease or buys the Equipment. 

Where to Find Equipment to purchase

Think of buying equipment in the same way you'd buy your family car - you want the very best features (safety first, capabilities, technology, fuel efficiency, etc.) for the most reasonable price. So before you buy a piece of equipment (new or used), check out these tips below to help you find the right equipment, dealer and price.

Determine your needs. The very first step you should take before buying equipment is to determine what kind of machinery your company truly needs. If you're choosing between an excavator and a dozer, write down their pros and cons, then decide which one will benefit your company more.

Do your Research­­­. Once you’ve decided what type of equipment you need for your company, start your research. This should include dealers, brands and equipment models.

Find the right dealer. Make sure you check out multiple dealers before deciding where you’re buying equipment from. Don’t hesitate to ask questions from the dealers either. A reputable and trusted dealer can and will answer any question you shoot their way. It’s also a good idea to ask what after-purchase services they offer.

Take a look at the equipment yourself. Before deciding which equipment dealer you’ll be buying from, pay them a visit and check out in person the equipment they are selling. This will help you determine if the equipment is in good condition, especially if you're buying it used. Taking the equipment for a “test drive” will also show you if the equipment operates and functions the way it should for your business use case.

 

Places to find equipment for sale - https://www.equipmenttrader.com/(USA)

Places to find equipment for sale – www.equipmentpatrol.com (Canada)

Final Verdict

As a business owner, you understand the importance of having the latest and greatest tools and technologies available to you. This includes everything from heavy machinery, trucks, vehicles, trailers, data processing equipment, computers, office equipment, medical machines, and more…which equipment financing can help you achieve.

Having the equipment you need relevant to your business activities is the difference between success and failure as a business owner by giving you the competitive edge and efficiencies to drive your business forward.

 

More Information:

 

Top 10 Benefits of Equipment Financing & Leasing

 

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