Equipment finance, also known as business equipment financing, is the financing of commercial and office equipment for acquisition through a loan. This can include purchases of new machinery, major renovations of existing facilities and expansion projects such as additions to existing floor plans. For businesses, equipment financing is often a substantial part of their capital budget, since the purchase of additional equipment can significantly increase a company’s bottom line. Equipment leases allow businesses to leverage their existing resources to acquire newer, more costly equipment without the worry of paying for it with future paychecks.
Equipment leasing is most commonly associated with equipment that businesses will not use immediately, such as office furniture or vehicles. However, even non-permanent business assets can be used as collateral for equipment financing. In some cases, small business owners use collateral to secure significant equipment purchases, allowing them to enjoy lower financing rates than they would have obtained through conventional financing. Because equipment financing is based upon the value of the underlying assets, business owners need to consider the risk of not being able to make payments when the time comes to sell the assets. If there are good future predictions for the sales of the underlying asset, then equipment finance may be an appealing option for business owners.
If a business fails to make payments on the asset when the time comes for the sale, then the collateral is considered forfeited. This means that the business owner must immediately sell the asset to raise the funds needed to repay the debt. In most cases, when companies obtain equipment finance they are able to obtain attractive financing terms by offering collateral that is less valuable than the total amount owed. Business owners can also obtain equipment financing that is a good match for their needs through commercial banks, credit unions and other lending institutions. Once all interested parties are involved, it is often easier for a business to get the equipment they need at a competitive cost.