Buying and maintaining machinery is a different story altogether. Especially continually upgrading the equipment. You need to pay a hefty amount as an upfront capital investment.
Also, you need to have a continuous working capital ready for upkeep and maintenance. And like most businesses, you may not have enough money available to purchase a machine outright or keep maintaining it. This is where equipment financing comes to the rescue.
Such financing option provides you more freedom to explore new growth opportunities and enables you to align repayments to suit your cash flow.
There are a wide variety of flexible finance options you can opt for. Such options will provide you with more working capital to grow your business.
However, equipment financing is not as simple as car financing. It can turn out to be tricky on the types of equipment you plan to acquire.
Vehicles depreciate over time at a uniform rate. But advanced types of equipment such as computers can depreciate much faster when completely new processors hit the market. However, heavy machinery can increase in value or retain the value.
So, we share several tips below to help identify and buy the right equipment finance for your business.
Equipment Ownership
As a first step, you need to assess if outright ownership or equipment leasing will bring more benefits to your business. If you decide to go for equipment ownership, the equipment you purchase will become an asset.
You can finance such equipment with a chattel mortgage or hire purchase.
Chattel mortgages are similar to vehicle or car loans. You get the ownership of the equipment and need to pay off the loan until you’ve paid off the mortgage.
A hire purchase works similarly. However, your financier or bank “hire” out the equipment to you until you pay off the loan and get complete ownership.
The advantage of such equipment financing options is that you don’t need to make any investment or have an existing asset. The equipment itself is the security.
Also, you can deduce interest and depreciation. Furthermore, you can get customized loans as per your cash flow situation.
Equipment Leasing
Equipment leasing is a great option if you require the latest technology or components to stay ahead of the competition. You don’t need to block any of your capital in purchasing an asset science you would be only leasing equipment for a definite period.
You will get the advantages of business finance. You can claim deductions on interest and depreciation. Since there is a residual value at the end of the lease, you need to make lower repayments compared to purchasing.
It gives you an option to purchase, trade your equipment once the lease ends, or simply walk away.
If you have been in the business for quite some time and have many equipment assets, you can sell your existing equipment to a financier or bank in a lease/hire back arrangement or in a sale. You can even hire back the equipment from the financial institution. In this way, you would have free capital that can you use in other business areas.
Imported Equipment
If you need to import your equipment from foreign countries, you may require the combination of loan/lease facility, buyer’s credit, and letters of credit (LCs).
Try selecting an integrated financing partner who has the expertise and enough experience to advise and support you with the right equipment financing solution.
Partnership
All your equipment requires insurance and regular maintenance to upkeep machines across their life cycle. If you partner with financiers or banks with excellent tie-ups with insurance companies and OEMs, you will benefit from integrated solutions that safeguard both your investment and equipment.
You may get in-house finance housing from equipment dealers. However, being a business owner your focus would be on improved return on investments (ROI). So, you consider experienced financial advisors or companies to get priceless expertise and better deals.
Terms and conditions
Understand the equipment financing option you plan to go for thoroughly before making any final call.
Read carefully, ask as many questions as you want, and understand all the clauses and covenants regarding asset ownership at the end of the lease tenure.
So, do you have any questions about equipment financing?