When a business has to buy the necessary equipment, it often has two options: rent the equipment and pay rent without purchasing the equipment, or it could take a risk and get a loan to buy the equipment directly. Today, however, there is a third option that has more advantages than many business owners would think: the equipment financing agreement.
Where can you get an equipment financing agreement
From the term one might think that this is just another form of buying a loan agreement available through a traditional loan broker. In fact, an equipment financing agreement is offered by the same types of businesses that would normally be the source of equipment leasing, a surprising fact that many business owners ignore because they think only in the short term and not in the long term, especially when it comes to money.
Although this may not be an option for companies looking to use new equipment only for a limited period of time, those looking to make a large investment in their business by purchasing new equipment can take very good advantage of this. program type. Not only will they be able to finance the purchase on more reasonable terms than those offered through traditional means, but they will also receive both property and tax relief.
In this type of financial agreement, the business assumes full ownership of the equipment, although it is technically considered to be leased until the final payments are made. This means that it can be considered a capital property from the first day, although it has not yet been fully repaid. It also entitles the business owner to take advantage of the tax relief provided for the purchase of new equipment with the intention of expanding or expanding that business, just as those available to owners who take out a capital lease. This can mean significant tax savings at the end of the year, depending on the monetary value of the equipment.
Of course, one of the main advantages of this type of arrangement is the lower monthly payments. Instead of investing a large amount of capital to purchase equipment or take out an unnecessary loan for the full amount plus interest, businesses can take advantage of the opportunity to use it while making payments that leave more capital available for investment in other aspects of the business. . For some businesses, this may mean the difference between moving forward with expansion plans now or delaying them for years until they raise capital.
Of course, the acquisition of ownership of a capital asset has its drawbacks. First, from day one, the business that acquires the equipment is responsible for all maintenance, upgrades and replacements if something goes wrong. It also requires businesses to establish a security agreement with the leasing company as a guarantee that they will be paid the purchase price in respect of another collateral held, in the event of default or bankruptcy.
Although some business owners may see this as more expensive than simply taking out a loan, entering into a equipment financing agreement with a recognized leasing agent makes it a more affordable option for two very good reasons. First, no interest is generally charged during the term of the financing agreement. Second, the leasing agency takes over the financing, and if it has gone through one that the business has worked with in the past, the financing is almost guaranteed. And while the lending company will indicate the purchase price as market value plus interest, the leasing company will list it as current value, plus if the equipment is actually used.