Equipment Financing

When it comes to getting the equipment Financing and/or machinery that you need for your daily business operations, you can either finance it or lease it.  Both of these options require you to make monthly payments on those items rather than paying the full amount for them up front.  So which option is better where equipment financing is concerned?

Financing vs. Leasing for Equipment Financing

Leasing provides flexibility when acquiring your equipment, but it may cost you considerably more over the long haul.  Granted, you only need to make the first and last payment, but it will eventually cost you more than purchasing.  Additionally, it is easier to upgrade your equipment and machinery when you are leasing it, there is more flexibility, and your lease payments are tax deductible as a business expense.

However, you still have to pay for the equipment, even if you stop using it and no longer need it.  Most importantly, you don’t own it.  Conversely, when you buy or finance your equipment you own it.  Plus the terms are more flexible and your business and personal credit can be used.  There are certain tax incentives as well, but it doesn’t apply to all types of business equipment (see Internal Revenue Code, Section 179).

 What Options do you have?

In order to get the equipment and/or machinery that you need in order to operate your business effectively and efficiently, you should research the different financing options that are currently available.  The most common options include:

Bank loans – typically the first option that business owners and corporate executives consider.  Many of the larger banks now offer equipment financing options for businesses but it requires that you have a solid business and personal credit history.

SBA loans – the CDC/504 Loan Program helps smaller businesses obtain equipment and real estate.  You do need to provide the lender with a legitimate business plan and prove that you have a sufficient enough cash flow to pay the loan off within a specified period of time (terms).

Private investors – this is an option worth considering, especially if you are looking to generate a large amount of money quickly and gain a strategic business partner in the process.  The two most common types are angel investors and venture capitalists.

Merchant cash advance – if your minimum credit and debit card sales are $5,000 monthly, you should consider this option.  You can get up to $250,000 provided you meet the eligibility requirements.  This is a popular option because MCA’s are available to most businesses, are processed quicker than traditional loans, and there are no credit checks.

 Additional Considerations

Loan-to-Value:

  • Can fund 85-100%, depending on equipment’s residual value
  • Generally, equipment is collateral
  • Minimum down payment required

Underwriting:

  • Easy and Flexible terms
  • Closing takes only 2-3 Weeks
  • Rates are competitive, depending on the amount of your down-payment, your credit worthiness, and the type of equipment you are leasing or purchase
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