This article looks at how equipment financing works. It begins by describing two types of equipment financing, and then it shifts focus to the application processes of each.
Equipment leasing is a very common practice. In fact, according to Inc.com’s page on the topic, 80 percent of companies partake in equipment leasing. This method can help a business obtain the equipment it needs quickly without tying up large amounts of cash. Essentially, companies make monthly payments for the right to use the equipment for a set period of time. When the lease ends, depending on the arrangement, the company may purchase the equipment, renew the lease, or let the lease expire and move on to newer equipment. This makes equipment leasing a fairly flexible option.
Equipment loans lead directly to the company purchasing the equipment, as opposed to leasing, in which the company rents it. With a loan, the borrower obtains funds for the equipment from the lender and then pays those funds back, plus interest, over a set period of time. Loans are a good method for companies that plan to use the equipment beyond the end of the loan’s term.
Applying for a Lease
The application process for equipment leasing is fairly straightforward. The business applies for credit from a lender. If the lender approves the application, they notify the business and send documents for completion. Once the lender has the completed documents, they contact the equipment vendor, who prepares and delivers the equipment. Next, the business confirms delivery, the lender funds the lease, and the borrower begins making payments to the lender.
Applying for a Loan
For a successful equipment loan application, the business will likely need a strong credit history, organized financial statements, and a sensible business plan. Typically, the borrower will also have to make a down payment, often in the amount of 20%. As with leasing, assuming the application is approved, the equipment will be quickly delivered.
Blackwater Capital Funding’s other blog posts are a great resource if you want to continue learning about the business world.