Pros and Cons of Equipment Financing
Having the right equipment to assist the growth of any company or business is sure a boost efficiency and morale. Equipment is indeed essential to any business or company, be it computers, the newest gas ranges in a restaurant, and so on. This is because it can reduce labor costs and increase productivity and customer satisfaction. On the other hand, acquiring this equipment is rather difficult for it can cost, if not hundreds, maybe even millions of dollars, which is out of budget capacity most of the time. This is where Equipment financing enters, such as restaurant equipment financing and others to offer chances to acquire the equipment they need.
What is Equipment Financing?
It is a loan that can acquire business-related equipment such as computers, photocopiers, a new restaurant oven, and more. Equipment loans have scheduled repayment, including the interest and principal in a fixed term depending on the agreed terms. The loan provider may require a lien (a legal rights or claim against assets) over the equipment as collateral on the debt to ensure the loan’s security. Once the financing is paid in full, the equipment fee will be cleared, and the equipment owner will be the one who took the loan. Now that it’s clear, here are its pros and cons to better understand if Equipment financing is the one for you.
Pros of Equipment Financing
Quick funding – Using this, you can quickly acquire the money you need to purchase vital business equipment, potentially increasing work efficiency and growth.
Workable terms – The requirements for equipment loans are usually more flexible than conventional loans and others.
Positive credit scores – If the loan is paid without delays and complications, it can positively impact your business credit score. Having transactions in the future can be smooth due to your positive credit score.
Break from taxes – This is one of the biggest pros of equipment financing. If the equipment is 100% for business use, you can save yourself from tax deductions.
Ownership – After full payment of the loan, you will fully own the equipment. This is the best part if the equipment has a long functioning life like machinery, Cold storage, Industrial oven, etc.
Cons of Equipment Financing
Payment term exceeds equipment life – This kind of loan usually takes around 3-6 years of installment payment method. Some equipment has a short shelf life. It can be disadvantageous if the set of equipment that you need is meant to be replaced after some short period, like office equipment with a short shelf life. It’s advisable to look for office equipment leasing companies to lease instead of loans.
Potential liabilities – If you have low credit scores, financing companies might require a lien, which bestows the right to seize other available business assets in case of failure to deliver payments. Financing companies might also put a personal guarantee that makes you liable for payment if the business can’t provide it.
Expensive – A financed asset’s value is expected to be higher than the cash value because of the interest and principal. A financed asset requires a down payment amounting to a certain percentage of its value, usually a 20%-30% down payment. If you financed a million-dollar asset, the down payment could be $200-300,000.
Another key to the success of a business or a company is having the right equipment to help maximize its potential and lead it to the best outcomes. But acquiring needed equipment is a difficult task for it requires a hefty amount of money which might be out of budget. That is where Equipment financing enters, providing loans to businesses to help them acquire their business equipment needs. But just like any other method of obtaining business equipment needs, there will always be pros and cons to consider before trying. It will always depend on the business owners if Equipment financing is the best for their needs.
If you are looking for business equipment suppliers for your business needs, only trust the best. Visit Noreast Capital today to learn more.