The Need for Equipment Finance Methods
The businesses that operate in many industries rely heavily on specialty machinery and equipment. This equipment is often quite expensive. The more successful these small businesses are, the more they have to acquire new equipment. For many of the companies, the question of equipment finance comes down to getting financing at a bank or leasing the equipment.
Debt and Ownership of Equipment Finance
Assuming a small company can find a bank to lend enough for the equipment, the company has to consider several factors. Buying expensive equipment can put a strain on the cash flow of a small business. There is usually a large down payment to be made. The payments on a loan will represent a monthly cash amount that includes paying for the equipment and making interest payments. If the company owns the equipment through a loan, it immediately takes depreciation on the value of the purchased machinery. Additionally, the debt to the bank is shown on the company’s balance sheet. This may keep the company from qualifying for loans it needs for other purposes. As a final issue, a small business will normally keep purchased equipment for a long period of time. That means that maintenance can become a significant cost.
Leasing of Equipment
Many small businesses find leasing to be a preferred method of acquiring the equipment they need. There are specialty leasing companies, both private and owned by manufacturers of equipment. These leasing companies provide financing when a loan is not available. Even if a loan is possible, the choice of leasing may be preferable. Companies can avoid large down payments. Their monthly payments are often lower, and lease payments can usually be totally written off. There are other advantages depending on the specific equipment and situation.
Many small businesses choose leasing for their equipment finance method.