Equipment finance is a loan or a lease which your business uses to get equipment it needs. Business equipment can be almost any tangible asset apart from property – examples would be office furniture, IT equipment, large tools, machinery or medical equipment. It is used for large, expensive pieces of equipment as an alternative to purchasing outright.
Normally the lender provides a business with the funds required to purchase or lease the equipment. The business then pays the money back, with interest, in monthly instalments often over several years.
Equipment financing is used when a business isn’t in a position to pay out large sums of money to purchase equipment outright. This may be when a business is at an early stage and needs to manage cashflow carefully, or when a more established business prefers to spend available funds in other areas.
The two primary options for equipment financing are equipment loans and equipment leases. At GRENKE we specialise in equipment leasing to support business growth.
Equipment loans are fairly self-explanatory – a business borrows funds to buy the equipment it needs. The equipment itself is usually used as security. This means that if the business fails to make the agreed repayments, the equipment is taken away. However, if the repayments are met for the full term, the business then owns the piece of equipment outright. This is a key difference between equipment loans and equipment leasing. The business may then choose to use that valuable asset as loan collateral to borrow cash for another purpose.
Equipment leasing is different in that when the term of the lease is over, the business does not own the asset but may have an option to buy it. Leasing may be a more attractive option as it can be less expensive and usually requires no down payment. Another reason leasing might be considered is when the equipment will quickly become obsolete and need to be replaced. It’s important to make sure the lease terms suit you in this case – is there a financial penalty for terminating the lease early?
The main advantage of an equipment loan is that your business owns the asset at the end of the loan term. The main advantage of an equipment lease is not being concerned about outdated equipment losing value. This is an important distinction which should be considered carefully in your decision making.
Is your business considering equipment financing? Is equipment leasing the right solution for you? Or do you want to talk to a leasing advisor to see if and feel that a leasing option suits your company talk to the experts in GRENKE today. We have 40 years’ experience in providing finance to businesses of different sizes and in different sectors. You can trust us to match the perfect financial solution to your unique business need.