Equipment Finance

Grow Your Business With Equipment Finance

Equipment finance is the best way for a business to expand without committing capital for equipment purchase purposes. Instead of spending a huge chunk of cash to purchase equipment, a business can acquire the required equipment through equipment finance. The business can then pay for the equipment through small monthly payments over a period of several years. Equipment leasing is the most common type of equipment finance. Basically, the financier buys the equipment and retains legal ownership. On the other hand, the business get possession of the equipment and can use it to generate revenue. In an equipment leasing arrangement, a lease fee must be paid on a monthly basis to offset the purchase price, interest and closing costs.

How Equipment Financing Works

Most lenders usually require a down payment before approving equipment finance. This can be anywhere between 1-20%, but some lenders may demand a bigger down payment if the applicant has a poor credit history. After approval of the finance application, the business will have to maintain a valid comprehensive insurance cover on the equipment for the duration of the repayment/lease period. The firm will also have to make monthly payments to offset the purchase price, interest, closing costs and other fees. After successful payment, full ownership is transferred to the firm. In case of default, the lender will repossess the equipment and auction it to recover their funds.

Benefits of Equipment Finance

The following are some of the benefits of equipment finance;

i) Free Up Capital

Businesses often have to struggle with working capital problems. This is because bills have to be paid, payroll settled and suppliers paid. In addition to that, license fees, insurance policies and other business expenses have to be paid. Since some capital may be tied up in pending invoices, spending the little capital a business is left with on equipment purchase will spell doom for the business. Through equipment finance, business owners can free up their capital for use on more important expenses, such as payroll, utility bills and paying suppliers. After all, they will only be required to make small monthly payments to the financier as equipment lease fees.

ii) Grow Revenue Without Huge Capital Investment

Equipment financing is a financial arrangement where the financier buys the equipment while the borrower takes full possession of the equipment and can use it however they like. After acquiring an important piece of equipment through equipment financing, the business will be able to increase its production and revenues. In fact, the increase in revenue attributed to the new equipment may be able to cover the lease fee for the equipment and leave you with some cash.

iii) Get Tax Benefits

The best thing about equipment finance/lease arrangements is that any payments you make to the financier are tax deductible expenses. When calculating your tax bill, you can deduct the total lease payments made during the financial year. This can significantly reduce your tax liability. You can even claim tax deductions for equipment depreciation, wear and tear. Be sure to consult a tax accountant or tax lawyer before claiming any of these tax benefits.

iv) 100% Financing

Most financiers nowadays offer 100% financing for equipment. Some firms may even offer financing for comprehensive insurance cover for the equipment and delivery charges. This means that business owners do not need to spend a single cent to acquire the equipment. Their only obligation is to pay a fixed monthly lease fee throughout the lease period.