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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.
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 finance, though 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 finance 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.
Want to finance a business vehicle? Compare your options here
How can I finance my business equipment purchase?
- 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.
- Business credit cards. Depending on the type of equipment you’re purchasing, you might want to use a business credit card, Business credit cards offer a few advantages. For example, you can get an interest-free period on purchases using a 0% APR business card.
Compare equipment financing loans vs. leases">Compare equipment loans vs. leases
How do I compare lenders that provide equipment finance?
- 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 one to seven 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.
The good and not-so-good of equipment finance
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 consider avoiding 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.
Do I need a loan to finance my purchase?
Not sure if equipment financing is right for your business? It all comes down to your equipment needs and how much money you’ll need for the investment. If your total purchases amount to under $10,000 for example, a business credit card could be more than enough. A traditional business loan might also prove useful for ongoing equipment maintenance, training and other considerations. Learn how to determine your business financing needs and choose the right type of loan.
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