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While it’s fair to think that financing would be available to leasing equipment, financing is also a common way for the purchase of forestry equipment. What’s not to love about smaller payments spread out over several months while you use said equipment?
Though the whole prospect is appealing, it’s still important that you get a good grasp and understanding of the financing process. To help, when you are planning to finance forestry equipment, you want to be asking yourself two key questions:
- What are the financial terms of the loan? And;
- Are any insurance coverages required?
Here is why you want to be asking those questions.
Financial Terms Of The Loan
In short, a financing agreement is a loan. And like all loans, they will have specific financial terms. When you investigating the financial terms of any loan, there are some specific items you want to be keeping your eyes on.
The first is the interest rate. The interest rate is what’ll determine how much you’re being charged for borrowing the money once you’ve the equipment. You should always strive to get the lowest interest rate as you possibly can because that saves your business money in the end.
And one good way of reducing the rate is putting more money up front for it. A good follow up question is asking whether paying more money up front now will lower the interest rate.
The second thing to look at is the duration of the loan. This will dictate how long you’ll be making payments for that purchased equipment. It’s obvious, however you want to compare that number to the equipment’s expected life span.
Generally speaking, having loan that outlives forestry equipment isn’t too big of a concern. Considering the equipment itself has to durable and long-lasting. Still, be sure to double check as you don’t want to be overlooking that you need to make payments after the equipment is retired.
The third and final thing to check is what the monthly payment is. The monthly payment is calculated based on several factors like the price of the equipment, duration of the loan, how much you’ve paid up front and the interest rate. Be sure that you can afford to make the monthly payments.
Once that’s covered, you can move to the second question. One thing you’ll notice when dealing with forestry equipment financing and loans is that they require certain insurance coverages. These requirements are there to ensure if the equipment ever gets damaged, destroyed, or stolen.
Stealing of this equipment is not common, however damage and vandalism can occur more often. Things like fallen trees or other natural elements do happen. This is on top of human error or equipment being left overnight or during weekends in the woods.
You want to make sure you know what insurance coverages the terms of an equipment’s loan needs and to have the business has those insurance coverages in place.
Generally speaking, the required coverages are property protection and not liability protections. Property protections are the types of protections that can protect the equipment itself in cases of damages.