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Compare equipment financing options for your business
Outfitting your business with the tools you need can be expensive - but a loan may ease the load. Get essential business equipment to keep your operations running smoothly.
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For some businesses, a wide range of equipment and machinery is essential to ensure financial success. Whether it’s heavy machinery, specialized medical equipment or the latest IT devices, equipment finance from a lender can give you access to the funds you need to help your business acquire what it needs to continue running.
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What is equipment finance and who offers it?
Equipment finance is designed to give you access to the funds you need to purchase essential specialized equipment for your business. Whether you’re looking to purchase a forklift to move goods in your warehouse or new X-ray machines for your dental practice, equipment finance is on hand to help.
A large number of lenders offer equipment financing, so there is a range of options borrowers can choose from. However, choosing the best approach for your business will depend on a range of factors including your financial situation, taxation needs and budget.
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How does equipment finance actually work?
Equipment financing gives you access to whatever important business equipment you need without having to pay for it upfront. Instead, you can receive the funds you need from a lender and then pay off your purchase over a set repayment period.
In other words, you get all the benefits of ownership before you actually own the equipment. However, there are several different financing routes you can choose to go with, including taking out a loan or a finance lease. Read on to find out more about how different types of equipment finance work.
Commercial loan or equipment loan. This is probably the type of finance most borrowers are familiar with. As a secured loan, the asset you wish to buy will be used as security for the loan. This means that you own the item in question and can claim any interest charges and depreciation of the asset as tax deductions.
Finance lease. A finance lease involves a lender purchasing the asset you want and then renting it out to a business for an agreed period. You can choose from flexible repayment terms to fit your budget, while the lease payments you make are usually tax deductible.
How do I compare lenders that provide equipment financing?
Find out the interest rate. The interest rate offered will obviously influence how much you pay over the life of your loan, so look for one that offers a low rate of interest. You’ll also need to consider whether you want the security of a fixed rate or the possibility for saving that a variable rate offers.
Compare the fees and charges. Whenever you sign up for any financial product, it pays to make sure you’re aware of all the fees and charges attached to the deal. Read all product information closely to know if the finance option you choose attracts fees such as an establishment fee or an early repayment fee.
Establish if there are any taxation benefits. The range of equipment finance options are assessed differently when tax time rolls around. Each approach has its own potential tax benefits, so seek advice from your accountant to learn which one suits you best.
What are the loan terms? How long can you take to pay off your asset? Terms typically range from 1-7 years, so look for equipment finance that offers a term suited to your financial situation.
Are there flexible repayment options? How often does each vehicle finance option let you make repayments? Look for a solution that lets you schedule your repayments in a way that suits your budget.
Pros and cons of equipment financing
Pros
Range of options. If you’re looking for equipment finance you can find options to suit a wide range of business needs and budgets.
Keep your business running. Equipment finance gives your business access to essential items that you might not be able to afford upfront, helping you stay competitive in the marketplace.
Flexible repayments. Equipment finance allows you to tailor a repayment schedule to suit your budget.
Cons
Too many options. The range of finance options and potential tax benefits available can be tough to wrap your head around, so you may need help from your accountant to choose the best equipment finance solution.
What should I avoid when it comes to equipment finance?
The main pitfall to avoid with equipment finance is getting into a financial agreement that you simply cannot afford to service. It’s important to consider how essential any equipment is before you commit to a purchase, as well as make sure you’re aware of your ability to make repayments on time.
Another common issue is that some people can get confused by is the array of equipment finance options available. Seeking assistance from your accountant is one way to go to ensure you make the right choice.
There may be a better option for you
Not sure if equipment financing is just right for your business? Learn how to understand your business financing needs and choose the right type of loan.
Frequently asked questions
The right finance option for you will be influenced by a whole range of factors, including how you do your accounting and your approach to taxation. If you can, seek help from an accountant to determine the best product for your needs.
Read product documents closely to look for things like origination or registration fees, late payment fees and early repayment fees. It can also be a good idea to keep an eye out for ongoing monthly or annual fees.
Leanne Escobal is a publisher for Finder. She has over 11 years of experience in financial services, specializing in content and marketing. Leanne has completed the Canadian securities course (CSC®) as well as the personal lending and mortgages course by the Canadian Securities Institute. She has a Bachelor of Arts (Honours) in English literature and creative writing from Western University.
2M7 provides up to 125% of your average monthly sales in a merchant cash advance that you’ll repay incrementally based on your daily sales transactions.
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