Production companies need video gear. Construction companies need heavy equipment. Accounting firms need computers. With few exceptions, every type of business relies on equipment—but the equipment isn’t free. This post looks at when equipment financing is a good solution for meeting a business’s equipment needs. It also compares financing to equipment leasing—the other major method of obtaining equipment.
Equipment financing comes in the form of a loan. Lenders provide these loans so that businesses can purchase the equipment necessary for the business to function. The business obtains ownership and control of the equipment.
The borrower may need to make a down payment and will definitely need to make installment payments to repay the loan. Interest rates vary from loan to loan, but according to Forbes.com contributor Rohit Arora, they tend to range between 8 and 30 percent.
The equipment often secures the loan, meaning if the borrower fails to hold up their end of the deal, the lender assumes ownership of the equipment to recoup their losses.
There are some key differences between equipment leasing—in which a business essentially rents equipment rather than purchasing it outright—and equipment financing.
Leasing typically offers the business some flexibility. For example, depending on the lease, there will likely be an option to either relinquish the equipment or renew the lease. That means the business can move on to newer equipment if desired.
However, financing often costs less money in the long run. If the business plans to use the equipment for longer than the length of the loan, purchasing becomes even more attractive. Purchasing the equipment can also open up some tax savings because the business can claim depreciation.
Both options are viable, but financing is often the stronger option for businesses looking to make long-term use of the equipment.
If you want to learn more about the financing and business world, check out Aspen Commercial Lending’s other blog posts!