Equipment financing can seem like an overwhelming prospect. Finding the right financer and figuring out what your equipment needs are can be confusing, to say the least. Here’s what you need to know to get started.
Replacing, purchasing new, or upgrading your equipment can be an expensive venture. If you’re short on cash flow, this can become even more complicated.
The good news is, with the right financing options you can reduce the pressure and avoid debt at the same time.
The first step is to realize that your business is unique. What might work for one business might not be appropriate. That starts with figuring out how equipment financing works, then to compare the financing options available, and what the pros and cons are for each.
Just like with any other business financing, your business will make payments towards your equipment financing until the debt is paid off then you’ll own it. Depending on your financing option, your equipment could serve as collateral which means if you default the lender will own your equipment.
Additionally, the financing agreement could impose a blanket lien or require a personal guarantee from you. This would allow them to gain control of your business assets if you default on your loan. In terms of a personal guarantee, the financer would gain control of your personal assets. So stay aware.
You can also meet your equipment needs by leasing it instead of buying it. This allows you to pay equipment as you go each month, rather than being liable for it if you default. Once your lease term is completed, you can renew your agreement or buy the equipment outright, depending on the terms.
In most cases with leasing, you are not required to put down a down payment. You aren’t bound by collateral either. Additionally, it could be easier to qualify for a lease than it is for a loan. The downside to leasing instead of buying is that you might end up paying more for your equipment over the long-term. Renting is traditionally more expensive than buying.
Keep this information in mind if you want to either buy or lease your business equipment. You will be glad you did.