A Beginner’s Guide to Equipment Financing
Often businesses are faced with the dilemma of requiring equipment that they don’t have the capital to purchase. Under these circumstances, equipment leasing is a viable option. It generally precludes the necessity of a large down payment, prevents you from getting saddled with obsolete equipment, and is often eligible for Section 179 tax deductions. Here are some things to keep in mind when considering equipment leasing.
Deciding Whether to Buy or Lease
When considering whether to purchase or lease equipment, remember that leasing is usually more cost-effective for equipment you need short-term or equipment that requires regular upgrades. Leasing often enables you to work with state-of-the-art equipment that your budget wouldn’t allow you to purchase. Buying an item gives you the freedom to customize it to meet your needs, but you also must deal with maintenance, repairs, obsolescence, and storage as the equipment ages.
Most businesses don’t purchase major pieces of equipment outright but rather use loans or lines of credit. However, these have the disadvantages of requiring high credit scores and large down payments. Additionally, interest rates may fluctuate unlike fixed-rate lease terms. Factoring invoices is a financing option that bypasses these traditional alternatives.
Steps to Leasing
When you complete an equipment leasing application, be sure to have financial data ready on your business and its principals. After the lessor approves the application, usually within one to two days, you finalize monthly payment amounts, the fixed-rate APR, and other details. You sign and return the documents along with the first month’s payment and then receive delivery of the equipment. You are responsible for insuring the equipment, extraneous fees during the lease process, the cost of maintenance and repairs, and returning the equipment at the end of the lease.
Choosing a Finance Provider
Equipment leasing finance providers may be intermediary brokers, subsidiaries of dealers or manufacturers, or independent lessors. Research their business history, payment system, and experience in your field before working with them.
For more advice on equipment leasing, contact Oakwood Commercial Capital Group.