When a business needs to purchase the necessary equipment, they will often have two options: lease the equipment and pay the rent without obtaining the equipment or they could take a risk and obtain a loan of some kind to buy the equipment outright. Today, however, there is a third option and it is one that has more advantages than many entrepreneurs might think: the equipment finance contract.
Where you can get an equipment financing agreement
Starting from the term, one might think of it as just another form of loan purchase agreement, available through a traditional loan broker. In reality, an equipment finance deal is available to the same types of businesses that would normally be the source for an equipment lease, a surprising fact that many business owners overlook because they primarily only think about short-term options, rather than long term. especially when it comes to money.
While this may not be an option for businesses that are only looking to use new equipment for a limited period of time, those looking to make a significant investment in their business through the purchase of new equipment could benefit from this type of program. Not only will they be able to finance the purchase on more reasonable terms than those available through traditional means, but they will also get the property and tax benefits at the same time.
In this type of financing contract, the company acquires full ownership of the equipment, although it is technically considered leased until final payments are made. This means that it can be considered as equity property from day one, even if it has not yet been paid for in full. It also entitles the business owner to take advantage of the tax breaks granted for the purchase of new equipment with the intention of growing or expanding that business, as well as those available to owners who contract a finance lease. This could mean considerable savings on year-end taxes, depending on the monetary value of the equipment.
Of course, one of the main benefits of these types of agreements is the lower monthly payments. Instead of investing a large amount of capital to buy the equipment, or taking an unnecessary loan for the full amount plus interest, a business can take advantage of the possibility of using it, while making payments that leave more capital available to invest in others. business aspects. For some companies, this could mean the difference between going ahead with expansion plans now or delaying them for years until they have raised capital.
Of course, assuming ownership of a capital asset has its drawbacks. First, from day one, the company that takes ownership of the equipment is responsible for all maintenance, upgrades and replacement, in case something goes wrong. It also requires the business to create a collateral agreement with the leasing company, as a guarantee that the purchase price will be paid to them in terms of another property security, in the event of default or bankruptcy.
While some business owners may see this as more expensive than simply obtaining a loan, entering into an equipment financing agreement with a reputable leasing agent makes it a more affordable option for two very good reasons. The first, no interest is charged on the principle during the term of the financing contract. Second, the leasing agency is securing the financing, and if you’ve gone through one the company has worked with in the past, the financing is pretty much guaranteed. And, while a loan company would list the purchase price as market value plus interest, the leasing company would list it as present value, an advantage if the equipment is actually used.