Tag: renewal alternatives

Ten Reasons to Opt for Equipment Loans for Business Purpose

Before starting off with any business, it is important that it is backed with proper planning. It can be maintained on a small scale; the proprietor can also plan to make it thrive on a larger scale by expanding it according to its needs. However in business, one cannot simply rely on the capital dedicated to starting off the work. One needs to consider the loan options that are required to boost the growth of trade. One important aspect of every industry is the range of equipment that it deals in. Purchasing equipment according to the need of the company is obviously a no-brainer in terms of financing. If the start-up fund does not permit, one need to go for equipment loans to support this need. Moreover, equipment can serve as collateral to be used to lease for the loan, in a way similar to the method of car loans.

Over the years, equipment financing has become a lucrative option for the conventional bank financing or the option of an outright purchase, and there are solid reasons to support its craze:

Payment as per Usage

Equipment leasing provides the option for the owner of the business to pay according to the revenues that the equipment can generate for the company. It works in the same way as to paying the employees on a bi-weekly or monthly basis instead of pre-paying them for their future tasks. It is important to consider these devices on the same scale as the employees; regarding them as assets of the company and paying them on the basis of the output that they come up with.

Payments for Equipment are fixed

In most of the cases of equipment financing, the payments are fixed according to the duration of the term. The interest rates in this particular case are not based on a floating rate, providing them an advantage over the conventional bank loans or direct purchases. This eases the process and enables the owner to take a healthy decision to support the budget for the equipment after considering the options available and also reduces the tension of interest rates.

Longer durations of Equipment lease ensure lesser burden of payments

In comparison to normal banking process where the loan term is limited to 12 or 24 months, equipment loans are more based on the useful life of the equipment. This extends the loan duration to about 4 to 5 years without any re-negotiations of the interest rate in between. As a result, the monthly payment is effectively lowered as compared to the normal bank procedures.

Option of Obsolescence Protection

With the advancement in technology, newer and better versions of the equipment turn up every year. What can be considered as the latest version of a particular device equipped with all the advanced features can become totally obsolete in a short period of time? Most loan packages come with a provision of upgrading the equipment economically within the last year of the lease contract, providing the company with the option of obsolescence protection. Additionally, in spite of the leasing company holds the title of the concerned equipment, the vendor can go for a trade on the equipment as well.

Opting out Down Payment

Most banks have the policy of making it mandatory for the company to provide a down payment of around 10-25% in order to start off the financing process of loaning the equipment. However, in a lease transaction, the entire amount is supported by either the first or the first and last payment being made at the time of inception of the lease finance. In cases where the company cannot support the amount being leased, it might need to go for a small down payment.

The option of 100% Financing

Traditional methods of financing do not include additional costs of installation, maintenance, freight and software in the loan. These costs are needed to be supported directly from the working capital. However, equipment financing also takes care of these soft costs; thus taking care of the working capital and providing the option of a single monthly payment taking into consideration the entire acquisition as a whole.

Flexible and creative process

Traditional banking processes do not provide for a wide range of option to suit the need of the loan applicant. They are bound by their respective Bank Acts and policies which limit their abilities to cater to the needs of their clients. Equipment leases, on the other hand, are focused on the requirements of the clients and have the option of being modified as the situation demands. The payment options can be structured in accordance with the irregular revenue stream to be incurred during the year or to match payback on the basis of the monthly savings of the equipment. This shapes equipment financing as one of the ultimate creative and flexible option for the clients.

Equipment leasing falls into the option of Operating Budget

In a large organization, capital acquisitions and transactions require a series of higher level approval than operating expenditure, thus making the process slow. However, a lease acquisition by virtue of it being a monthly expense falls under the category of operation budget. This affords managers from different departments to approve the acquisition in a much shorter period of time, making the process all the more fast and easy.

Better purchase and renewal alternatives

Previously, equipment lease packages are structured in such a way that the only option for the purchase of the equipment available was the Fair Market Value determined at the end of the lease tenure. However, this policy has been modified over the years with the option of a defined purchase price decided upon at the point of lease inception. This enables most of the leasing company to come to a mutually agreed upon conclusion regarding the purchase price for the equipment. Additionally, the option can be re-discussed upon under a new lease contract over a defined period of time.

Tax Benefits

Lease payments are generally considered as a disbursement on the income statement, and as a result, it can be simply written off. However, depending on the unique financial circumstances of each company, it is beneficial to consult an accounting firm prior to taking a decision based on tax advantages.

There are several other benefits of the equipment loans option when it comes to the need of the company. It provides the company the option to go for the latest technological advancements, providing it an extra competitive edge in the market. This also enhances the corporate outlook of the company. With all its advantages, device financing has become the ultimate sought-for option for most companies when it comes to supporting their equipment required for their productivity. If the company officials want to avail such aforesaid lucrative options, it is recommended to go for the option of equipment leasing after consideration of the necessary terms and conditions.