Equipment finance is a financial arrangement between the financier and a business for the former to help the latter to acquire equipment or non-movable assets on credit. The applicant identifies the equipment he or she wishes to acquire and obtains an invoice from the vendor. After filling out the prescribed application forms, the applicant attaches the invoice before submitting the application. After analyzing the information provided by the applicant and running a credit check, the financier drafts an equipment finance agreement outlining the terms and conditions of the credit facility for the applicant to sign. Once the funds are ready, the financier gets in touch with the vendor to make arrangements for delivery of the items and payment of the quoted price.
Advantages of Equipment Finance Over Traditional Loans
Aside from equipment finance, business owners have a number of other options for acquiring equipment and other types of assets. For instance, secured loans, business loans and asset finance are usually very common. Unfortunately, asset finance products only apply to movable assets like trucks and automobiles. On the other hand, business loans are better used for working capital financing among other important functions. Lastly, some businesses may not have enough tangible or paper assets to use as collateral for secured loans. This makes equipment finance the best financing option for both large and small businesses.
To qualify for equipment finance, the applicant must provide the financier with bank statements for the previous financial year, recent financial statements and a down payment. A credit check will also be done on the business as well as its owners to determine their credit worthiness. A business with a high credit score and a healthy balance sheet will have its application approved fast.
Benefits of Equipment Finance
One of the main benefits of equipment finance is that it allows business owners to acquire essential equipment for their business without having to use their own cash reserves or working capital. Since the equipment is used in production or income generation, it can pay for itself. This means that neither the income nor the profits of the business will be adversely affected by the acquisition. Most financiers also offer 100 percent financing, so this is a plus. When making finance payments, the installments can be deduced from taxable income for tax purposes.