Updated: Nov 24
When it comes to equipping your business for success, having access to specialised equipment is paramount. Equipment financing offers you the opportunity to lease the equipment you need, with the possibility of eventually owning it outright by the end of the lease period.
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Equipment financing is a type of Asset Finance that serves as a business loan option that empowers businesses to acquire equipment and machinery through various credit arrangements such as operating leases, hire purchase, or finance leases. Hire purchase is suitable for short-term needs when the intention is to replace the equipment at the lease's conclusion.
On the other hand, operating leases are long-term agreements that may offer the opportunity to purchase the asset at the end of the lease period. In the case of a finance lease, the lessee rents the asset for a significant portion of its useful life.
EQUIPMENT FINANCING LOANS:
Equipment financing encompasses three distinct types that enable businesses to acquire the latest equipment by making monthly instalment payments with added interest. The equipment itself serves as collateral, meaning that if the repayments are not met, the lender has the right to reclaim the equipment. In the case of a capital lease, once the loan is fully repaid, ownership of the equipment is transferred to the business. Equipment financing falls under the broader category of asset finance, where the lender purchases, insures, and maintains the equipment. The business owner then agrees to rent the equipment for a predetermined period, ranging from one to seven years.
This form of financing is particularly popular in the agriculture sector. Farmers utilise costly equipment to enhance their operational efficiency, leading to increased output and revenue. However, committing significant upfront capital for machinery purchase can pose risks to cash flow. Another industry where equipment financing is prevalent is aviation. Airlines often opt for long-term leases, spanning from one to twenty-five years, as a means to acquire and utilise aircraft.
BENEFITS OF EQUIPMENT FINANCE:
The majority of businesses lack sufficient cash reserves to make outright purchases of expensive equipment. This holds particularly true for new businesses, as such a significant cash outlay could severely impact their cash flow. Even for established businesses, it is often more advantageous not to directly purchase equipment, especially if they anticipate upgrading to newer models in the future. This approach allows business owners to preserve cash reserves and working capital, which can then be directed towards business growth initiatives and improving cash flow.
Tax efficiency is another benefit of certain equipment finance options, such as equipment leasing and sale and leaseback arrangements. Leasing an asset entails monthly expenses that are tax-deductible, making it a more tax-efficient choice compared to outright purchasing.
Equipment finance provides the advantage of easy budgeting and management. With predictable payments spread over time, cash flow management becomes simpler, enabling business owners to focus on the day-to-day operations of their business.
Flexibility and scalability are additional benefits of equipment finance. If a business experiences growth and requires additional equipment, financing allows for quicker acquisition without a significant upfront financial burden. Whether it involves increasing production capacity or expanding vehicle fleets, equipment finance serves as an excellent means to facilitate business growth.
Utilising equipment leasing rather than outright purchasing also grants businesses access to other lines of credit, a benefit that is often overlooked. Similar to the advantages of tax efficiency, equipment finance represents a predictable monthly expense, enabling businesses to pursue additional forms of financing concurrently. This can prove invaluable, as businesses can acquire the necessary equipment while simultaneously securing a business loan for purposes such as marketing initiatives.
TYPES OF BUSINESSES THAT USE EQUIPMENT FINANCE:
Equipment finance extends its eligibility to a vast array of industries and sectors, encompassing a diverse range of business domains.
Bar and pub
Restaurant and takeaway
Café, bakery and coffee shop
Agriculture and farming
Buses, coaches, cars, vans, trucks and haulage
Finance for a garage or mechanic
Laundry and dry cleaning equipment finance
Manufacturing and heavy industry
Office and IT equipment
Racking warehouse equipment and shelving
Refrigeration and air conditioning
And the list doesn't stop there... Equipment finance is gaining increasing popularity among businesses throughout the UK as a preferred method for acquiring necessary assets while preserving cash flow and facilitating business growth.
HOW DO I GET AN EQUIPMENT LOAN?
We keep our business finance options transparent - no hidden fees or nasty surprises.
This is business finance made easy. Our no-obligation application won't impact your credit score.
HOW LONG CAN YOU FINANCE EQUIPMENT?
The duration of an equipment loan is determined by various factors, such as the equipment's cost, anticipated depreciation, and the lender's terms. Whether you require financing for a short-term period of one year or a longer span of up to seven years, there are flexible options available to meet your specific needs.