There comes a time when a business may be required to upgrade or replace its pieces of equipment to maintain smooth operations. However, as a business owner, you may lack the additional financing needed to make the necessary purchases. Luckily, you may opt for an equipment financing to aid you in acquiring the equipment you urgently need. Here is a sneak peek on using equipment financing to help you obtain the tools you desire.

What Are the Forms of Equipment Financing?

When planning to obtain a piece of equipment, you can choose between seeking an equipment loan or leasing the equipment.

Equipment Loan

It refers to a loan that is specifically used to purchase equipment. Businesses that engage in the manufacture or processing of commodities are often in need of purchasing, repairing, replacing or updating their equipment. It helps them in maintaining maximum efficiency and productivity. Lenders offering this service each have their terms and conditions. You are usually required to give down payment that is 20% the value of the equipment. The loan obtained thus only finances up to 80% the cost of the machine. The loan is secured using the purchased item.

Equipment Leasing

Equipment leasing usually does not involve a down payment, which is extremely beneficial for companies with little to no additional capital. In this form of equipment financing, you can finance up to 100% of the total value of the item. It may come with an additional 25% to cater to additional costs, such as taxation and transportation charges. At the end of the lease, you may choose to return the equipment or buy it at a lower price after fully reimbursing the principal of the loan

How Does Equipment Financing for Businesses Work?

In equipment financing, you are issued with a lump sum to pay for the machinery. You are required to pay back the loan at a specified interest rate within a fixed time-frame. The determination of the loan term depends on the cost of the item and its expected lifespan. With equipment loans, you gain full ownership of the equipment only after complete payment of the debt. In equipment leasing, you do not own the This equipment after the expiration of the term. Equipment financing presents as an enticing option as paying for equipment is spread out over a long period, making it manageable.

It is preferred to get an understanding of the different forms of equipment financing and how it works. This enables you to make an informed decision when assessing the different ways you can buy equipment for your business.