Every business, no matter how abstract, will require some sort of physical equipment. As a business grows, this need becomes more urgent—bringing up the question of financing.
When to Consider Equipment Financing
A young business may not have the cash flow to support large equipment purchases or to update their office space. While this is the most obvious reason to consider equipment financing, there are other times when it may be an appropriate option:
- When the need for the equipment might be temporary or seasonal
- The sudden failure of equipment that’s vital to business function
- When an opportunity for diversification requires additional equipment
Any successful business owner understands that establishing an organization is both expensive and risky. Equipment financing makes sense and choosing the right type of financing can have a huge impact on your current and future purchasing power.
Deciding Whether to Take Out a Loan or to Lease
There are two primary types of equipment financing:
- Loans: Equipment loans are financed by either a financial institution or the company selling that equipment. The business will receive the physical assets that they need and will make regular payments with the purpose of eventually owning that piece of equipment. The equipment itself acts as collateral, and if a business owner misses a payment it’s simply repossessed. These types of loans are subject to interest rates and repayment terms contingent on the financial health of the business as a whole.
- Leasing: Leasing is a financing option that essentially allows you to borrow the equipment for a regular payment. This is appropriate for equipment that will need to be frequently updated or that’s only necessary on a temporary basis. Depending on the type of lease, the business may be given the option of purchasing the equipment after payments equal the value of the equipment are made.
A loan can require a hefty down payment and a qualifying credit score, making an equipment lease a more viable option for many business owners.
Learning more about your financing options is crucial to the health and longevity of your organization. Contact Value Capital Funding today for more information and an expert advantage.