Equipment Finance

Your business needs equipment; chairs, copy machines, faxes, and more. You aren't sure of the best way to handle financing the equipment. Should you lease, buy, what? This article will look at the different ways equipment finance can be handled.

Equipment finance can be done through four major options. Loans, leasing, municipal leasing, and leasebacks are what we will focus on here. Remember, the option you select for your company will vary depending upon your business needs and your business credit.

Equipment Loans: this financing option allows you to purchase the equipment through either traditional or non-traditional loan choices. Using a loan requires good financial histories, credit and debt-ratio scores. The benefit of using a loan to purchase your equipment is that at the end of the repayment period, you now own the equipment. You can enjoy all the benefits of that equity which can include tax incentives.

Equipment Leasing: this allows you to free up cash flow while still acquiring the equipment needed to help your business function. Leasing requires little credit history, usually no down payment, and typically lowers requirements for credit history. Leasing is usually tax deductible. Contracts are negotiated for specified time periods.

Municipal Equipment Leasing: this finance option is a tax exempt method of leasing equipment; however, it is limited to state, county, city, and other public entities that use tax funds. The main reasons these entities utilize this type of financing option is when they need the equipment and the funds are not available in the current budget, a bond is not justifiable, long term financing in not justifiable due to the short life of the equipment, or because they simply cannot afford the purchase.

Leasebacks: this option is open to businesses that already own equipment that need to free up cash for other things. This method allows businesses to sell of equipment to other parties; however, the equipment remains and is leased to the company that sold it. This allows the business to keep from interrupting use of the equipment and to write off payments. It doesn't interfere with any other credit lines your business may have and doesn't require any additional collateral.

Whatever your situation, make sure you research the method you feel is best suited to your particular circumstances. Be careful when selecting a lender. Ask for referrals and make sure that you read the fine print in any contractual agreement.