Equipment Financing
When a company has to purchase new machinery or equipment, securing a general commercial loan might not be the smartest option. A better option is to apply for specialized equipment financing. There are several ways to do this: by leasing new machinery, issuing a sale-leaseback, or securing a loan using the equipment as collateral.
Lean More About Equipment Financing
Whether it’s heavy machinery, fleet vehicles, or new high-tech equipment, the price tag on these items can be quite high. Unfortunately, for many small businesses, this puts new equipment out of reach. While borrowing money through a generic loan can pay for new equipment, it could be risky.
There are three primary ways to finance equipment:
Leasing
Rather than purchasing machinery outright, a company can lease it from a third-party lender. The benefits of leasing include a lower cost of maintenance, the ability to upgrade to new machines once the lease expires, and a reduced monthly payment. The downside, however, is that the equipment loses liquidity.
Lease Buybacks
Companies that already own high-end equipment can sell those materials to a leasing agent to generate emergency cash flow. The company receives payment for the machinery up front, then signs a lease agreement. The money from the sale can help smooth out cash flow problems and the company gets to continue using its equipment.
Equipment Loan
When leasing and lease buyback doesn’t fit, a business can secure financing for an equipment purchase. These loans use the equipment as collateral, which secures the loan and makes it easier for borrowers to qualify.
Loan Highlights
Almost all equipment can be purchased with these loans, including high-tech devices and some software programs.
Loan terms are usually lengthy, with some options extending up to 25 years.
Lease buyback programs offer upfront payments and agreeable lease terms.
Most equipment loans come with no prepayment penalty.
Equipment Financing Pros and Cons
If a company decides to lease, it’s not responsible for maintenance and upkeep.
Lease buybacks are perfect for alleviating cash flow problems.
Since the machinery is the collateral, most businesses can qualify for a loan.
Most companies don’t need excellent credit history to get financing. Even startups can qualify.
Leased equipment ceases to be a tool for liquidity.
Depending on the lender, the approval process can take up to 90 days.
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