An equipment financing deal may be the best option for business purchases

When a business needs to purchase necessary equipment, it will often have two options: lease the equipment and pay the rental payments without obtaining the equipment, or it could take a risk and take out a loan of some kind to purchase the equipment outright. However, today there is a third option and it is one that has more advantages than many entrepreneurs might think: the equipment financing agreement.

Where can you get an equipment financing deal?

By the term, one might think that it is simply another form of purchase loan agreement, available through a traditional loan broker. In reality, an equipment financing deal is available with the same types of companies that would normally be the source of equipment leases, a surprising fact that many business owners overlook because they primarily only think about short-term options, rather than of long term. especially when it comes to money.

While this might not be an option for businesses only looking to use new equipment for a limited time, those looking to make a significant investment in their business through the purchase of new equipment could very well benefit from this type of program. Not only will they be able to finance the purchase on more reasonable terms than are available through traditional means, but they will also get tax and property benefits at the same time.

Benefits

In this type of financing agreement, the company assumes full ownership of the equipment, although it is technically considered leased until final payments are made. This means that it can be considered capital property from day one, even if it has not yet been paid in full. It also entitles the business owner to take advantage of tax breaks granted for the purchase of new equipment with the intention of growing or expanding that business, just like those available to owners taking a capital lease. This could mean significant year-end tax savings, depending on the dollar value of the equipment.

Of course, one of the main benefits of this type of arrangement is lower monthly payments. Instead of investing a large amount of capital to purchase the equipment, or taking out an unnecessary loan for the full amount plus interest, a business can take advantage of the opportunity to use it, while making payments that leave more capital available to invest in other aspects of the business. . For some companies, this could mean the difference between going ahead with expansion plans now or delaying them for years until they have raised the capital.

Disadvantages

Of course, assuming ownership of a capital asset has its drawbacks. First of all, from day one, the company that takes ownership of the equipment is responsible for all maintenance, upgrades, and replacement, should anything go wrong. It also requires the company to create a guarantee agreement with the leasing company, as a guarantee that they will be paid the purchase price in terms of other own guarantees, in the event of default or bankruptcy.

While some business owners may find this more expensive than simply taking out a loan, entering into an equipment financing agreement with a reputable leasing agent makes it a more affordable option for two very good reasons. First, no interest is charged on the principle for the duration of the financing agreement. Second, the leasing agency secures the financing, and if the company has worked with one in the past, the financing is virtually guaranteed. And, while a loan company would list the purchase price as market value plus interest, the leasing company would list it as current value, a plus if the equipment is actually used.

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