Equipment financing is a kind of loan that is specifically designed to pay for the needs of your business equipment. A few examples of such loan may include automated machinery, commercial ovens, machine shop tooling, chillers, generators, large format printers, trucks, commercial refrigerators, chillers, car wash equipment, trailers, molders, agricultural equipment and all other equipment that’s used or can be used in a commercial setting.
When you are planning to consider equipment financing however, there are a number of things that you must be mindful about. Commercial equipment financing is a type of loan where you can buy piece of equipment and repay it for a set period of time. As for the lender, they will use the equipment purchased as collateral. It is actually a nice option to finance equipment particularly for long life ones that will not be easily obsolete. This is due to the reason that as soon as it has paid off its worth, you can still use it on your operations for it still has great value.
However, you should know that not all equipment is good for financing because there are some of it that wouldn’t be a smart idea to get a loan at like computers and hi-tech machineries for they only have short useful life. The reason why this type of equipment is not a good financing option is that, the equipment is under technology category and we all know that this sector becomes obsolete fast. There are instances that you only get even after paying it off. Does it make you wonder why? The reason here is fairly simple and straightforward, technology changes every so often and in order to keep up with these changes, it is essential to buy the software or hardware that gets an update. While this is going to help your business have a smooth flow, it will likely be a recurring expense.
Big agricultural/industrial or low tech equipment are actually better samples of the things that you should consider when planning to finance equipment. The reason is fairly simple, you don’t have to replace such equipment soon for they do not become obsolete quickly.
The benefit of equipment financing is that, as soon as you have paid off your equipment loan and you have outright to the equipment, the monthly cash outlay of your business will definitely plummet. And if that equipment you financed before still has useful life and value, then it only indicates that your profit margin will keep going up. Furthermore, tax advantages can also be good when you purchase the equipment via loan since you can depreciate its total value and deduct the depreciation from taxable income.
But just remember to use equipment financing on equipment that your business need the most.