How Equipment Financing Works

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Whether you have a start-up business or an established one, having the right equipment is needed to be successful. Having to replace, upgrade, or buy equipment for the first time is often quite difficult, as it can often be expensive and damage cash flow. However, with equipment financing, getting the equipment you need is made much easier.

What is equipment financing?

Instead of paying a lump sum of money all at once for the items you need, you can instead pay small amounts monthly. It’s similar to other loans in the sense that you’ll be paying a set amount each month – and with interest. You’re never expected to pay the full price for equipment all at once with these types of loans; you pay affordable amounts over a period of time instead.

And, whilst you are paying, you can use the equipment, too. This can help a business to keep the money that would be spent on the equipment outright – where they can either save it or use it for other reasons. With that money, the owner of the business could decide to expand it, or pay for other important things such as advertising.

Why is equipment financing good?

If a startup business doesn’t have the money to pay for a piece of equipment that they need, then the business could either fail, get into debt, or struggle to make ends meet. But not when they make use of equipment financing.

This option allows them to have what they need and pay for it in increments that can maintain their standing. This makes their cash flow look much better – and they’ll actually be able to afford the asset over time. Many businesses benefit from equipment financing, whether they’re new or not, which makes it even better.

Equipment leasing

Equipment leasing is a form of financing that is slightly different to the usual kind – and this can sometimes be better for specific business needs. With an equipment lease you’re actually renting the object, rather than paying to keep it at the end of the term.

So, each month the business pays money to use the asset. And, at the end of the term, the business will likely have the choice to continue to rent it out, to give it back, or to buy it. The reason that it can be better is because the business is able to stop renting it if they want to, at any time.

That means that if a newer model is released they can just start leasing the newer item and stop renting the older one. And, as you can probably imagine, the ability to do that can be quite useful if the type of equipment is often upgraded or changed.