The Benefits of Equipment Financing
At some point, virtually all businesses will have to purchase equipment, which means they may be interested in equipment financing—that is, taking out a loan to purchase equipment. This article goes over several considerations you should keep in mind to help you decide if it’s right for your business.
Consideration 1: Length of Equipment Use
As opposed to equipment leasing—in which a company essentially rents equipment—equipment financing allows the company to keep the equipment at the end of the loan’s term. This can be especially advantageous if the equipment projects to have long-term usability, according to Forbes.com. Examples of items that are likely to have a long usable life include furniture, farm machinery, and restaurant gear that won’t soon become technologically obsolete.
On the other hand, equipment leasing may be preferable if the equipment is likely to be outdated in the near future. That’s because at the end of the lease, the company can move on to new gear.
Consideration 2: Expenses
Naturally, expenses are another factor to keep in mind. When compared with purchasing equipment outright, equipment financing will be more expensive in the long run because of interest payments. However, if your company does not have the funds on hand to buy equipment up front, financing will allow you to get the equipment you need much sooner.
Additionally, if the equipment you’re financing is used solely for your business, you may be able to use it to trigger certain tax breaks. Financing can also let you protect your company’s cash flow instead of tying up a massive amount of money on a lump purchase.
Consideration 3: Equipment as Collateral
When you take out equipment financing, the equipment you purchase will serve as collateral to secure the loan. This means your other assets will be protected. However, also keep in mind that you will be responsible for protecting and maintaining the equipment on your own.
If you’d like to learn more about business financing, be sure to check out the rest of Approved Business Lending’s blog posts.