Everything you should know about Equipment Financing Companies
No matter the size, kind and growth of your business, it needs multiple types of equipment for working successfully. However, these equipments maybe office devices like scanners and laptops, restaurants equipment like oven and dishwashers. Depending on your enterprise’s industry, the specific equipment you might need may be costly.
However, Maintaining, upgrading and buying the equipment for any business is costly, and as quickly as you invest for machinery, the new version comes out and makes you outdated. Therefore, most of the business’s owners choose to lease and finance their equipment. Equipment financing permits you to purchase the tools for your company needs without disturbing your cash flow.
To equilibrium these two priorities of future flexibility and investing in the right equipment, you should look for the best equipment financing companies. Through this post, we will outline the things that you must ask your selected company before making your final decision, how equipment financing works, and who is eligible for mortgage.
Equipment financing is the utilization of a loan or leases to buy or borrow hard material goods for your business. This kind of funding might be used to acquire or borrow any physical asset like a restaurant oven or a company car.
Different types of Equipment Financing
Commercial hire purchase (CHP)
In this kind of equipment finance, the lender agrees to buy the property required by the business. The lender will allow the companies to hire the equipment for a fixed monthly repayment over a particular period. In a CHP, the possession belongs to the lender throughout that agreement term, even though the business is in control of the property. Only after all the monies (including the interest) are paid will the company officially own the equipment.
Commercial Hire Purchase is perfect for businesses that account for GST payments, whether on a hard cash or accrual basis, since you may be capable of claiming a tax deduction. It is also a good alternative for businesses who would like for better cash flow.
Chattel mortgage
Chattel finance explains the financing deal where a borrower purchases a temporary asset or property (chattel) by taking a loan from equipment financing companies. The chattel gives out as security in case the borrower fails to disburse the loan. It’s different from a typical mortgage, in which the loan is taken against a fixed asset or property, like land or a home.
Alternatively, the rights of the property in a chattel mortgage are relocated to the borrower right after the purchase, much like all mortgages. This is different with secured loans, where the borrower cannot lawfully own the purchased asset unless the loan is paid off. Many productions who want to buy equipment make use of a chattel mortgage.
Different types of loans
There are two major kinds of loans that can be used for equipment financing: equipment and term loans. Equipment loans make use of the equipment being purchased as security. While some lenders would oblige a down payment, it is likely to obtain 100 per cent financing in some cases. It is often easier to meet the requirements for an equipment loan than a conventional term loan, so this may be an enhanced alternative for small or startup businesses.
Although a term loan might be more complicated to obtain, more well-known businesses could take benefit of lesser interest rates and higher credit limits. Term loans can be safe or unsecured. You may utilize the equipment as collateral or various additional business assets for the loans that you think are secure.
Business Line of Credit
With a business line of credit, you can have a loan up to specific limit. You may take out and pay off as you wish. You don’t have the right to go beyond your deadline and only pay interest on the money that you borrowed. This fluctuates from a traditional bank loan, which gives you a fixed amount that you pay back over a fixed period. Lines of credit usually do not require collateral but bear higher interest rates, which can make your tools more costly over time.
Business Credit Card
Business credit cards function like credit lines, where you have right to use a fixed amount of money that you can draw from. The credit confines on business credit cards are typically less than lines of credit. As a result, cash advances on credit cards tend to be pricier. Moreover, Interest rates are often also somewhat high, and many cards charge yearly fees.
In spite of these drawbacks, business credit cards can be helpful to local businesses that trade equipment from merchants who sell online or who have a preference for credit card purchases. Several cards also put forward rewards, like cash back or travel miles to the customers.
What to consider before deciding the type of equipment financing?
Before making your final decision regarding the equipment financing, consider the following factors so that you can make the right assessment for your business.
Payment terms
This influences the overall expenditure as well as your monthly cash flow. In most cases, it makes sense to equivalent your payment terms to the existence of the equipment.
Down payment
It would help if you thought about how much of down payment, you may be necessary to pay for different financing options. However, it depends on your credit history, number of years in business and yearly earnings. If you can have enough money for more substantial down payment upfront, you could reduce the amount of your monthly payments. Alternatively, businesses that have not enough cash on hand would advantage from having to come up with a minor down payment.
How to Apply for Equipment Financing?
Almost every equipment financing companies has its own unique application procedure, but in general loan applications can be finished online and have minimum paperwork requirements. When applying, you’ll frequently require providing the following documents:
- Company name
- Basic business contact information
- Your Driver’s license or State ID
- Bank statements for financial history and avoided company check
- The predictable cost of equipment
