Purchasing equipment is a large expense for most businesses, especially those that have recently launched. Even so, the company can’t go without computers, vehicles, electric tools, and other equipment needed to perform their trade. When cash flow is a constant challenge, obtaining larger items through equipment financing can be an attractive option.
What Is Equipment Financing?
The term equipment financing means that your company borrows the funds it needs to purchase equipment from a bank, credit union, or alternative lender. You may have also heard the term equipment loan, although the two are not the same thing. Before applying for any type of financing, it’s helpful to know how long you need to repay the lender as well as the amount you think you will need to finance.
With an equipment loan, you receive a lump sum from the lender and use it to purchase the equipment outright. Your payments each month depend on the length and amount of the loan along with the interest rate charged. When you choose equipment financing, it’s similar to renting an apartment. You make payments to the lender each month while that company continues to own your piece of business equipment. At the expiration of the lease, you can opt to continue it for a new term, discontinue it, or offer to purchase the piece of equipment outright from the lender.
Fortunately, many companies that offer equipment leasing include a clause that allows the lessee to purchase it for one dollar once the original lease expires. That means you don’t have to come up with the money to purchase the piece of equipment when you have already been making payments for at least 12 months. Small businesses often find it more convenient to lease equipment than buy it because it ensures they always have the latest model available to them.
Are you interested in further exploring equipment financing and other business financing options? Contact GP Solutions today.