Beginner’s Guide to Equipment Financing
If your business needs new equipment to thrive or grow, you may be wondering how to finance it. After all, while equipment is generally a good investment, figuring out the details of the equipment financing process can seem complicated and confusing, especially if it’s your first time going through it. Thankfully, it doesn’t have to be! With a little knowledge about the process and the terminology involved, you can go about securing funds with confidence. Take a look.
Decide on Financing or Leasing
While they may sound similar, financing and leasing have a few key differences. If you finance your equipment, a lender gives you the money to pay for what you need. The equipment is listed under your name, but you repay the lender. In a leasing situation, the lender buys the equipment in their name and you pay a monthly fee to use it. Leasing is a bit like renting, although in lease-to-own plans, you could end up owning the equipment after a certain period of time.
Check the Term Length
Whatever plan you’re considering, make sure to take a good look at the term length. The term length is simply the length of time the plan lasts – in other words, how long you’ll be paying the loan back. Typical lengths for equipment can run anywhere from three to five years, but this can be modified depending on your specific situation. If you want to pay more each month but get everything paid off faster, a shorter term may be the way to go. On the flip side, if you don’t mind a longer term in exchange for lower payment amounts, go for a longer term plan.
Consider Flexible Financing
Finally, there are some types of plans that take your specific needs into consideration and are customized to meet them. Having a plan unique to you can have numerous benefits, including allowing you to pay it off according to your means. Some flexible financing plans include 100% financing, which requires no down payment on your part; deferred payment, which lets you delay the first few payments; and step payment, which means the amount you pay increases as the lease goes on.
Getting new equipment for your company is a worthwhile investment, but the complexity of the financing process can sometimes seem overwhelming. Luckily, there are a few key things that can help simplify the process and get you the funds you need. With this information under your belt, you can start getting your equipment financing plan together with confidence.