Equipment Finance is a powerful means for enhancing purchasing power that is used by many businesses as a tool to acquire equipment and expand operations. There are are number of ways to finance new equipment, and as your business grows, substantial capital will be required. Financing a large equipment purchase helps you to alleviate the strains on existing capital and improve organizational cash flow.
One of the biggest benefits of equipment financing is the ability to borrow funds with only the equipment serving as security; in this sense, equipment financing alleviates stresses associated with significant reduction of existing business capital.
It’s a good option for lenders as well. Having the funds protected by the collateral value of the equipment gives a sense of security for lenders because the finances borrowed can’t exceed the value of the equipment itself. If payments were to default, the lender could recoup the outstanding funds using the value of the equipment. Another big benefit to the lender is that the durational term of the loan can’t be longer than the perceived usefulness of the equipment.
What are the Benefits for Business Owners?
Heavy equipment financing is a perfect solution for businesses that typically struggle to secure traditional forms of funding, like a line of credit for example. It allows smaller companies and startups to gain the equipment they need to increase operational capacity, or to continue working when existing equipment fails indefinitely.
Further, purchasing equipment outright can be quite expensive and puts considerable financial strain on the entire organization. Financing heavy equipment allows funds to remain with the company and increases cash flow to pay for other responsibilities over a duration of time that suits the cash flow limitations of each individual company.
When businesses don’t have to direct large sums of capital towards new equipment, they gain from the ability to direct funds to other important aspects of everyday operations, like customer satisfaction, new human resource processes, employee salaries and benefits, insurance, etc.
Another benefit is being able to attain 100% of your financing with no down payment. This may be achievable through your lender and can be a huge benefit to business owners if cash flow is a concern. Equipment financing is also of value to businesses who are closely monitoring their risks. Equipment financing can help to dull the uncertainty of investing in equipment until you are able to attain a certain return on your investment – this can mean increasing efficiency, meeting other business-related objectives, or saving cash.
Updating your equipment fleet is another big perk of heavy equipment financing. As previously noted, older equipment will fail inevitably and businesses have a real choice to make when it comes to maintaining old equipment that may cause headaches again down the road, or upgrading to newer, more reliable machinery. If your company only plans to use certain equipment for a short term, leasing may be your best bet for securing an agreeable monthly payment. This is of particular benefit when you’re dealing with equipment that uses rapidly changing technology. Having the ability to build a mutually agreeable financing or lease duration means the option to resell equipment when you have no further use for it.
Finally, there are considerable benefits to business owners in the taxation arena when you consider equipment financing. Lease financing often provides businesses with the ability to fully deduct payments against its earnings. It can also conserve funds that you wouldn’t have access to with an outright purchase.
What Types of Equipment Finance Are There?
Travelers Financial can accommodate a plethora of different financing and leasing agreements to suit equipment financing questions and concerns. Our financing solutions are always geared towards helping your business meet its organizational goals.
Perfect for businesses that easily anticipate low and high periods to cash flow within their business. This can mean seasonal businesses, or anticipated changes to a market based on emerging financial information or trends. Step-up and Step-down equipment financing deals allow you to customize your payment schedule by accelerating payments during busier times, and reducing lease payment amounts when business is slow.
Quarterly Equipment Lease
A lease deal that is set up in quarterly payments is a striking possibility for businesses that function well by planning around typical business cycles, as opposed to a monthly payment schedule. Similarly, there are also semi-annual, annual and seasonal equipment leases that play to the same benefits as quarterly equipment financing agreements in that business cycles can help businesses project their thinking forward.
Re-financing & Sale Leaseback
Refinancing allows your business to take out a new loan to satisfy an existing borrowing agreement by using equipment as collateral to secure a new loan. Your business may renegotiate the terms of the previous loan in terms of a reduced monthly payment, a lower interest rate – depending on current market conditions – or shorten/lengthen a current borrowing timeframe.
In addition to taking advantage of better advertised interest rates, you can also opt to apply for refinancing when your credit improves. Refinancing can be beneficial when negotiating better loan terms as your credit health improves, and as payments consistently come in on time. For many businesses, refinancing means adding peace of mind, and clearing unnecessary financial stress.
A sale leaseback agreement allows your business to make use of the value of pre-existing equipment. Your business already has assets tied up in the equipment it owns, and a sale leaseback financing agreement allows you to sell this equipment to a lender for the fair market value of the original purchase amount.
This is a perfect leasing agreement for businesses looking to free up capital for other goals, and you keep the equipment on site by leasing it back from the lender. Key features of sale leaseback deals include flexibility in lease terms and alleviation of financial stress by freeing tied-up capital.
Fair Market Value Lease
FMV leases are viable options for businesses that prefer to keep monthly payments as low as possible while at the same time, using the latest in new technology. In fact, it’s become one of the most popular leasing deals for businesses because of the flexibility it can offer.
FMV equipment lease deals allow your business to defer a fraction of the equipment purchasing price tag until the end of the lease term – at this point you can decide whether or not to purchase the equipment at its fair market value, return the equipment to the lender, or continue leasing on a month-to-month basis. This is a good choice of lease agreement for companies that deal with equipment which operates with rapidly updating technology. When the equipment loses value while in operation, the decision to sell or buy at fair market value – when the time comes – is made easier.