Any business whether big or small needs funds for various activities; be it for day to day activities or for capital expenditure. It is not always possible to spare funds for purchase of equipment, as equipment are expensive it requires a large amount of investment. Therefore, most businesses opt for vehicle & equipment financing where you can take a loan from a loan lending company for purchasing the equipment without having to pay the entire sum upfront. The equipment for which you want to take the loan could be anything from heavy machinery, vehicles like a four-wheeler or two-wheeler, computer etc. By going for vehicle & equipment financing you can save the funds of your organization for other business activities and keep positive cash flow running in the business. You return the sum of money that you borrowed for your equipment over a period of time in installments and once the debt is repaid, you own the equipment legally. In most cases, the equipment itself serves as collateral so that if you default, the lender assumes ownership.
Why should one Opt for Vehicle & Equipment Financing?
If you opt for traditional methods of loans, then most lenders will ask for your organization’s financials for at least the last 2-3 years which is not possible for a new company or start up to provide. This creates a huge impediment. This make equipment finance a perfect fit for startups and small businesses. Vehicle & equipment financing is much more flexible & customizable as compared to other methods of financing and loans.
Vehicle & Equipment Financing Vs. Leasing:
Leasing is where you have taken the equipment on lease for a certain period of time in lieu of fixed payments. The one taking the equipment on lease is known as the ‘lessee’ & the one giving it as ‘lessor’. The key difference between financing & leasing is that in the former you essentially own the equipment whereas in the latter you are not the owner as you have taken the equipment on lease for a certain period of time.
Key Benefits of Vehicle & Equipment Financing:
- Capital Conservation: No need to invest business capital hence the funds can be used for other core business activities.
- High Degree of Customization: equipment financing is flexible and customizable to your needs.
- Quick Process: it is very quick, and hassle free compared to other loans.
- Increase in Purchase Power: It helps in purchasing better /higher end equipment since you are being financed for the equipment.
- Accounting Benefits: Equipment financing could be tax deductible. It helps in better earnings.
- No Collateral Required: the equipment itself serves as collateral.
- Ownership: once the loan is completely repaid you can assume full ownership of the equipment.
- Faster Update Of Equipment: Vehicle & equipment financing helps in faster upgrading of your machinery/equipment etc. thus helping you discard old & obsolete equipment.
Be Mindful of These Below Mentioned Points:
There are a few points you should consider before opting for vehicle & equipment financing.
- Higher Cost: The cost of financing can be a deterrent considering interest cost, arrangement fees, processing cost etc.
- Ownership: once the loan is repaid you own the equipment. Which has its downside of owning obsolete or old equipment as paying back the loan takes time. And nowadays the way the technology is developing every vehicle or equipment depreciates over a period of time.
- Down Payment: In some cases, you might have to make a down payment which could be up to 20-30% of the equipment cost.
Overall, the benefits of vehicle & equipment financing far outweigh its limitations. It helps you to keep your business operations running smoothly without having to invest heavily in equipment and strain your cash flows unnecessarily. It is a boon for startups & small companies who are not so cash rich and cannot afford outright purchase of equipment. Sometimes it is these little tips that can help you make a huge difference in your financial outputs and prevent burning a hole in your pocket.
