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In today’s fast-paced global economy where businesses continue to rise, equipment financing is a great option for entrepreneurs to advance their economic gains. Here’s why.
What Is Equipment Financing?
Equipment financing refers to a kind of business loan that allows businesses to purchase the equipment they need to operate, on credit. There are different types of equipment financing: operating lease, hire purchase, finance lease, or a chattel mortgage (see Westpac’s article about this type of loan).
Operating lease is a long-term commitment and it brings along the possibility of purchasing the equipment by the end of the lease period. On the other hand, hire purchase is rather short-term, and should be opted for if you eventually plan on replacing the equipment. Lastly, a finance lease is when the lessee rents the piece of equipment for most of its useful life.
As per their requirements, entrepreneurs can use these types of equipment financing to utilize equipment for their everyday workings, while they continue to pay for it via installments and added interest.
Benefits Of Equipment Financing:
Instead of draining your capital on purchasing expensive equipment for your business, you should consider equipment financing as it offers an efficient alternative. Here’s how it might be a better choice for you:
1. Tax Efficiency
Businesses may be able to profit from tax advantages by financing their equipment purchases. For instance, companies may be able to exclude interest paid on equipment loans from their taxes, which can lower the cost of borrowing.
Read the tax benefits of equipment financing here.
2. Easy Budgeting
Equipment financing has predictable costs. This allows you to spread out and manage your budget without having to make any sudden adjustments. This way, your business can function in a smooth, stress-free manner and you can concentrate on thriving.
3. Flexibility
If you spend a large sum on a piece of equipment for your business and soon it becomes outdated and needs an advanced replacement, you will be facing a loss. So, equipment financing might be a smarter choice as it gives you the flexibility of upgrading your equipment before it turns into a liability. This means whether you are ramping up production or changing the outlook of your business, equipment financing is a great way to stay flexible.
4. Battle Inflation
Considering the ever-growing inflation rates, financing your equipment presents a smart solution to combat inflation. That is because, as you sign a lease, you lock in the interest rates. This means they remain the same in the following time frame, despite growing inflation rates.
How To Get An Equipment Loan?
Now that you are aware of the numerous benefits of equipment financing, you might be wondering how to avail this fruitful opportunity.
Well, here is a guide for you to get financing for your equipment:
1. Explore Your Options
Firstly, you need to pick a lender. In this regard, you can consider multiple options. You can either visit your local bank for assistance or reach out to an independent or online lender.
Here, choosing a lending partner that has prior knowledge about your industry may make things a bit easier for you.
2. The Process
After you have selected your lender, you will have to pick out the specific equipment that you would like to loan.
The next step would be to negotiate the pricing details with your lender and reach a mutual consensus.
Lastly, you would have to submit the required paperwork. This includes equipment invoices, tax returns, corporate financial statements, and a narrative description of your business, etc.
Remember, the sooner you provide the required information, the quicker your lender should be able to provide you with feedback. So make sure to have all paperwork in order before applying for an equipment loan.
Final Words
With endless competition in the business world, standing out and making good profits is hard. However, equipment financing comes with numerous benefits, and maybe spark your business needs to turn into an empire.
To help you further with your entrepreneurship journey, here are ways to effectively manage the growth of your business. Good luck!
