When a business needs to purchase needed equipment, they will often have two options: lease the equipment and pay rental payments without obtaining the equipment or they could take their chances and get a loan of some kind to purchase the equipment outright. Today however, a third option exists and it is one that has more advantages than many business owners might think: the equipment finance agreement.
Where You Can Get Equipment Finance Agreement From
From the term, one might think that it is simply another form of purchasing loan arrangement, available through a traditional loan broker. In reality, an equipment finance agreement is available from the same kinds of businesses who would normally be the source for an equipment lease, a surprising fact that many business owners overlook because they primarily only think in the short term options, rather than the long term, especially where money is concerned.
While this might not be an option for businesses that are only looking to use new equipment for a limited amount of time, those that are looking to make a major investment in their businesses 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 at more reasonable terms than those available through traditional means but they also gain ownership and tax benefits at the same time.
In this type of finance agreement, the business takes on full ownership of the equipment, even though technically it is considered to be leased until the final payments are made. This means that it can be considered as capital property from the first day, even though it has not yet been fully paid for. It also entitles the business owner to take advantage of tax breaks afforded for the purchase of new equipment with the intent of growing or expanding that business, just like those available to owners who take on a capital 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 to this type of arrangement is the lower monthly payments. Instead of investing a large amount of capital to purchase the equipment, or taking on an unnecessary loan for the full amount plus interest, a business can take advantage of being able to use it, while making payments that leave more capital available for investment in other aspects of the business. For some businesses, this could mean the difference between going forward with expansion plans now or delaying them for years until they would have raised the capital.
Of course, assuming ownership of a capital asset does have its drawbacks. First, from day one, the business taking possession of the equipment is then responsible for all maintenance, upgrades and replacement, should anything go wrong. It also requires that the business create a security agreement with the leasing firm, as an assurance of them being paid the purchase price in terms of other owned collateral, in case of default or bankruptcy.
While some business owners may see this as being more expensive than just taking out a loan, entering into an equipment finance agreement with a recognized leasing agent does make it a more affordable option for two very good reasons. The first, no interest is being charged on the principle during the length of the finance agreement. Second, the leasing agency is underwriting the financing and if gone through one the business has worked with in the past, the financing is pretty much guaranteed. And, whereas 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.