Equipment finance can help mitigate the uncertainty of investing in a capital asset your business needs until it achieves a desired return, increases efficiency, saves costs or meets other business objectives. Equipment financing may hedge inflation risk because instead of paying the total cost of equipment up front or with a large down payment in todays dollars, the stream of payments delays your outlay of funds. In addition, either a lease or loan can lock in the rates that exist on the date of the closing. In other words, the finance company absorbs the devaluation of your payments over time due to inflation and other financial risks.
Equipment financing provides funding for companies looking to purchase equipment, but lack traditional funding sources to pay for the purchase. Typically with equipment financing loans, the cost of the equipment is spread out over the course of a payment plan which extends over a number of years. For these business funding types, the equipment is used as collateral to help secure the position of the lender and lower the interest rate on the loan.
Equipment finance is often used by growing companies to purchase necessary equipment, but may also be used by established companies to replace tired equipment or upgrade equipment to remain competitive. Some equipment financing companies require a business history of at least 3-years and rates may vary based on how long the company has been in operation. Tangible assets that are peripheral to a company’s operations but are nonetheless necessary. Trucks to transport materials and toilet paper for customer bathrooms are both examples of equipment. Fixed assets that are acquired as additions or supplements to more permanent assets. Equipment includes lighting fixtures in a building, for example. Equipment, unlike real estate, is generally moveable.
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