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Every business needs equipment. Whether a baker or a construction firm, most can’t operate without them. However certain equipment is more expensive than others. A new truck cost significantly more than a calculator, and often times these purchases can have a negative impact on the financial outlook for the company. Equipment financing can help solve these problems, making life less stressful for many small business owners.

The different types of equipment financing

Equipment financing can be broken up into several types of financing. The most common is Equipment Purchase financing, allows businesses to purchase new equipment while paying it off over an extended period of time. Purchase financing often does not require collateral, making it perfect for companies that have been previously rejected for a loan.

The next set of equipment financing options are equipment leasing and equipment sale-leaseback.  Equipment Leasing is similar to leasing a car, the property is not owned by the company, but is leased to them. Usually requires no down payment, and once the job is completed the owner doesn’t need to worry about storing or maintaining the equipment. Equipment Sale Leasebacks on the other hand feature equipment that is purchased from the company by the lender, and then leased back to the original owner for continued use. This allows the business to continue to use equipment until completion of a job but doesn’t force them to maintain or store equipment.

Finally, there is refinancing and hard money loans.  Equipment refinancing is used to help pay off a loan on already purchased equipment. typically, 12 months in length, the company still owns the equipment, however, it is used as collateral. This allows them to get better payment terms and helps to ease the burden of the loan debt. Hard money equipment loans are paid with cash and are used for the purchase of new equipment. They can also be used for business expenses, like salary or material, but do require that the equipment is used as collateral. Most banks won’t deal in hard money loans due to the way the loan is paid out and the general terms of the loans.

Which is right for me

Determining what type of financing will work best for a company depends on what they do, what their financial stability is like, and what they need to purchase. A major company that simply needs a stopgap solution till they receive payment may consider a hard money loan, while a smaller company that only has a temporary need for an expensive piece of equipment may consider a lease.

Selecting the right type of financing often comes down to cash flow.  If you will use your equipment for a long time and cash flow is not a concern, it is often best to purchase it.  If you need to limit expenses, leasing may be a good option.  Or if you own your equipment but need a cash injection, a sale-leaseback or refinancing is often a great choice.

Other items a broker might consider include if there is a dire need for the financing now or is it planning for a future job/need, or What is the long-term outlook for the company, and how does a loan might impact it.

A loan broker will be able to help a small business owner understand exactly what they need, and where they will best find that financing.  Navigating the world of equipment financing can be a tricky procedure. Understanding what each type of financing does, and how it impacts your company’s cash flow, is essential to finding the right financing. If you are looking to finance the purchase of new equipment, refinance existing equipment, or use your existing equipment to improve your company’s liquidity, we can help.