Replacing, upgrading or purchasing new equipment can be costly, especially if you need to pay upfront. With equipment financing, you can use existing equipment or the equipment you want to purchase as collateral to get what you need, without hurting your bottom line.
From computers and coffee machines to cars, equipment financing is a type of business loan designed specifically for the purchase of business equipment.
You can purchase and start using the equipment right away and make payments toward what you borrow over time, using the equipment itself as collateral. The loan amount and terms are dictated by the price of the equipment. Once you’ve made all of your payments, the equipment is yours to keep.
The process of applying for equipment financing is fairly easy and is typically less difficult than a traditional loan:
Equipment financing enables you to buy a piece of equipment outright and pay it off in instalments. Leasing, on the other hand, enables you to rent the equipment for a set period of time.
Both options allow you to get the equipment you need, when you need it. But there are several pros and cons to both:
|Management repayments instead of a large upfront cost.||If the equipment becomes obsolete, you might still be paying off the loan even after you are no longer using it.|
|You will own the equipment after your repayments are complete.||It may depreciate and you may not be able to deduct the full cost on your tax return each year|
|Usually does not require a down payment or collateral||Renting equipment is usually more expensive in the long run.|
|You only pay for what you use.||You give the equipment back after use.|
Remember, you don’t necessarily need a specific type of loan to buy equipment, so consider whether another type of loan might work better for you.
You want to ensure you apply for the right type of financing for your business so that you get the best bang for buck while also taking advantage of opportunities. Here are a few questions to ask before applying for equipment financing:
What information might I need to apply for equipment financing?
A lender may require the following: a completed application form, signed privacy documents, a commitment schedule, details about the equipment (i.e. what it is and where it is being sourced), and financial information such as personal tax returns or cashflow forecasts.
Can I receive equipment financing if I’m self-employed?
This will largely come down to the lender’s requirements, along with other factors such as how long you've been self-employed, your credit history, and whether or not you can show sufficient proof of income.
What equipment can I finance?
Different lenders will have differing policies regarding what types of equipment or goods they are willing to finance. Generally, equipment that can be depreciated for business purposes are accepted.
How long can I finance the equipment for?
Although this depends on the lender’s terms, many offer periods between 12 months to 60 months. It usually comes down to how expensive the equipment is, along with what its expected life will be.
Still not sure if equipment financing is right for you? Compare other types of loans to learn more.
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