Equipment finance can be an excellent source of funds for business owners that require more cash to run their businesses. In the U.S., companies that earn at least $25 million use equipment financing in over 80% of their transactions to acquire assets, lines of credit, loans and leases. When the U.S. and the rest of the world are still feeling the effects of a shaky global economy, many businesses find that obtaining credit from traditional sources is often more difficult. With equipment finance, companies can offer a solid collateral that will help them acquire the funds they need to grow their business.
How Does Equipment Finance Work?
Equipment financing is a type of business loan wherein the borrower presents one or several equipment as collateral to the lender. Typically, the loan amount is less than the value and useful life of the collateral. This is explained by the fact that equipment can get old, become obsolete and depreciate over time. Should a borrower fail to pay back the loan, the lender may sell the financed equipment to cover for the unpaid debt. Equipment finance is commonly used by hospitals and medical practitioners to help them obtain funds to purchase expensive new equipment. Most equipment-based loans are insured by government agencies that want to provide small and start-up businesses a good financing opportunity, so lenders can enjoy a good amount of protection.
Types of Equipment Considered Acceptable
Most types of equipment can be used to obtain a loan. However, only heavy equipment and machinery can be used to take out a long-term loan, not just because of the value of the collateral but also its usable life. Not every type of equipment can be approved for financing, though. In some state, one type of equipment may be considered acceptable while other states may not approve of the same equipment. Before applying for equipment finance, ask lenders in your state if the type of equipment you want to put up for financing can be used as collateral.
Benefits of Equipment Finance
Equipment finance offers a number of advantages to a company or business owner. It can:
Increase and Preserve Cash Flow
Companies can benefit from a stronger cash flow because of the new source of funds from the loan.
Preserve Your Capital
Equipment financing allows a company to utilize an asset to build capital while retaining what capital the business already has. Since there is no large cash outlay to contend with, a business can focus on the more important stuff, such as boosting production, improving processes and meeting the bottomline.
Take Advantage of Tax Incentives
Local and federal government entities offer low-interest and long-term equipment finance for businesses that want to install solar systems but do not have the funds to do so. Tax incentives are available for both companies and homeowners.
How Does Equipment Finance Work?
Equipment financing is a type of business loan wherein the borrower presents one or several equipment as collateral to the lender. Typically, the loan amount is less than the value and useful life of the collateral. This is explained by the fact that equipment can get old, become obsolete and depreciate over time. Should a borrower fail to pay back the loan, the lender may sell the financed equipment to cover for the unpaid debt. Equipment finance is commonly used by hospitals and medical practitioners to help them obtain funds to purchase expensive new equipment. Most equipment-based loans are insured by government agencies that want to provide small and start-up businesses a good financing opportunity, so lenders can enjoy a good amount of protection.
Types of Equipment Considered Acceptable
Most types of equipment can be used to obtain a loan. However, only heavy equipment and machinery can be used to take out a long-term loan, not just because of the value of the collateral but also its usable life. Not every type of equipment can be approved for financing, though. In some state, one type of equipment may be considered acceptable while other states may not approve of the same equipment. Before applying for equipment finance, ask lenders in your state if the type of equipment you want to put up for financing can be used as collateral.
Benefits of Equipment Finance
Equipment finance offers a number of advantages to a company or business owner. It can:
Increase and Preserve Cash Flow
Companies can benefit from a stronger cash flow because of the new source of funds from the loan.
Preserve Your Capital
Equipment financing allows a company to utilize an asset to build capital while retaining what capital the business already has. Since there is no large cash outlay to contend with, a business can focus on the more important stuff, such as boosting production, improving processes and meeting the bottomline.
Take Advantage of Tax Incentives
Local and federal government entities offer low-interest and long-term equipment finance for businesses that want to install solar systems but do not have the funds to do so. Tax incentives are available for both companies and homeowners.