Equipment Financing

One issue that many small business owners face is keeping up with the expensive cost of equipment necessary to maintain their business operations. The reality for most small business owners is that having the right equipment to get the job done is essential for success, and navigating financial plans to understand the different options available is important to get your employees the resources they need. A smart business owner knows how to utilize multiple funding alternatives to bring in capital from different sources and ease the burden from any one route of funding. Equipment financing allows small business owners flexibility by extending the payment terms for large equipment purchases – instead of paying one large sum at the point of purchase, equipment financing gives owners the option to make payments over time while their business can utilize the equipment.

When looking to purchase equipment, a business owner can use operating cash flow, while they can also have the option of utilizing a variety of attractive equipment loan programs available. Whether it be for construction equipment, phone and computer systems, copiers and printers, or vehicles, there are programs available with terms that are typically better options than paying with cash. Equipment financing plans can be used to fund any kind of equipment, furniture, fixtures, vehicles, or other tools that are crucial to day-to-day operations for your small business. As a small business owner, it is important to do some research on how to finance the expenses necessary for your business to succeed. By considering different equipment financing options available for your small business and finding a lender that works well for you, you can get your business the tools it needs, often at a lower rate than traditional loan options. Generally, there are two types of equipment financing available for small business owners: equipment loans and equipment leasing.

While rates can start as low as 5.25%, the interest rate for equipment financing is dictated by an array of factors. Like any type of financing, credit plays a role in the rates and terms that are offered, but the equipment type can play as equally as large role. As an example, fork-lifts have a long life-span and are considered great collateral for equipment lenders, while computers and phone system have to be frequently replaced, depreciate quickly, and have a very low residual value. The nature of the equipment being financed will determine the rate and value of the equipment financing program offered by different lenders.

By using equipment financing to cover equipment expenses, your small business can reserve cash flow for other expenses and needs. Using equipment leases or equipment loans to finance equipment purchases frees up working capital and keeps other lines of credit open. When small business owners utilize equipment financing, traditional lending options are still available later – it is important for small business owners to always consider multiple avenues of capital. For example, small business owners can use a business equipment loan to purchase equipment that can be used immediately after purchase, and extend the payment for the equipment over the terms of the equipment financing loan. By using a business loan for equipment, small business owners can always maintain state-of-the-art equipment without the blow to working capital. Maintaining lower monthly payments over the terms of the financing plan frees up working capital that can be used in other places. Equipment financing increases efficiency and productivity, takes advantage of tax benefits, and preserves cash. Talk to your financial professional about how equipment financing can work for your small business.

There is also a tax benefit for small business owners that utilize equipment financing. A smart small business owners knows how to use tax breaks to their advantage. We recommend forming a strong relationship with your tax professional and doing research when choosing the right lender for your equipment financing needs. By working closely with lenders and tax professionals, you can take advantage of the tax benefits that equipment financing can offer. With an equipment loan, because you make payments throughout the terms of the loan you pay interest to the lender at the rate agreed on in the loan terms. For most equipment loan terms, the interest paid on the payments can be written off as a tax deductible – however, the total principle payment cannot be written off. There are bigger tax benefits with equipment leasing. For most equipment leasing program terms, small business owners can write off the entire lease payment as a business expense. That means the entire amount paid for the equipment can be written off by deducting the monthly lease payments. Another big tax benefit that applies to equipment leasing are the government incentives written into the tax code. According to Section 179 of the IRS Tax Code, the full amount of equipment purchases can be written off if an equipment lease is set up. Even if you do not pay the entire amount for the equipment in the year you are filing taxes for, you can deduct the entire amount on your taxes for that year.

Equipment with long lifespans such as CNC machines or fork-lifts have high residual values and tend to receive longer lending terms, while copiers and printers have low residual values and are financed on shorter terms. As a small business owner, be sure to do your research and take advantage of the information that is available online – by searching information from lenders and other resources on the Internet, you can find out how equipment financing works, what to ask for when financing equipment, and some sites offer equipment finance calculator tools to help you figure out how to choose right financing for your equipment.