EQUIPMENT FINANCING

Key Things To Remember About Equipment Financing
And Leasing

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When a company seeks financing, it means they want a loan to buy equipment for ownership.
When a company wants to lease equipment, they are generally looking to rent equipment. As
mentioned in the last article, the lease can specify whether the lessee is leasing to own, and
provides contingencies should they decide to terminate the lease early.
Here’s some things to remember about equipment financing and leasing:

● Equipment Financing Requires Less Up-Front Capital
Anyone who’s ever tried to buy something that costs more than they have recognizes a loan.
That is exactly what equipment financing is. It is using someone else’s money to afford
something. Less capital is required up front because the equipment isn’t being purchased with
cash.

● There Are Tax Advantages Available For Equipment Financing
Annual tax deductions for small businesses can be pretty generous in the United States.
Equipment financing can be written off as a small business expenses for up to $500K every
year. So there is both a clear logic and financial incentive to get equipment financing.

● Fewer Documents When Using Equipment Financing
When a company applies for equipment financing and leasing, the lenders want to see specific
documents. They will want to see fewer documents when a company is looking to purchase
equipment rather than lease it. Documentation for a company’s credit score and financial history
is less important for equipment financing. It is more important for equipment leasing.

About Equipment Leasing & The Differences

Unlike equipment financing, the company needing equipment becomes the lessee, and has an
agreement with a lessor. The purpose of an equipment lease is to rent equipment rather than
buy it. There are advantages to this which we’ll cover here.

● Flexibility To Stay Current With Technology
Many companies (especially technology companies) consistently upgrade their equipment every
few years. It makes little sense to buy something only to have to replace it so soon.
Industries in construction aren’t always having to change their equipment, but there are highly
specialized equipment which some companies don’t need regularly. They may use a lease for
those.

● No Down Payment For An Equipment Lease
There are certainly exceptions, but many equipment leases don’t require a down-payment. This
means less money invested for a small business, freeing up capital for other needs.
This is highly attractive to startup companies or businesses that don’t have a lot of working
capital. The less they spend on expenses the better.

● Similar Tax Incentive
Just like equipment financing, a company can write off the expenses of the lease for tax
reimbursement. This is also important since many companies use tax-relief to their advantage.

● Lower Up-Front Costs Or None At All
As mentioned before, most of these leases don’t require up-front cash. Also, the leases will
usually have a lower monthly payment. (But the interest paid means you are probably going to
pay more in the long run)

How To Find The Right Lender Or Loan

The lending industry has become flooded with companies looking for ways to finance or acquire
essential equipment. A study found that in 2017 the demand for leasing equipment vs
purchasing was rapidly fluctuating. But the demand was always there.

A majority of companies were using cash as a preferred method from 2012 to 2016, however, in
2021 a survey was completed which indicated that 79% of small businesses had an outstanding
debt. 44% of those owed anywhere from $100K to 1 Million dollars. It is now documented that
2020 was officially a global recession, causing worldwide financial hardships. Millions of
businesses were forced to seek financing to stay afloat and acquire essential equipment.
When this occurred, businesses were either surviving because their industry was in-demand, or
it was deemed non-essential and sunk. During this troublesome period of financial volatility, loan
brokers were highly valued by businesses. A broker could connect a lender/lessor with a needy
business or lessee.

Furthermore, lending institutions like traditional banks (large or small) were the first place that
businesses went to get the funds they needed… and were often declined.
Alternative lending options have a significantly higher rate of approval and provide more
flexibility with payments.

A Broker Has The Connections

Brokers are invaluable for both equipment financing and leasing. It can be a frustrating process
to qualify for loans or leases. Brokers make this process much simpler and will work on your
behalf, making sure you get the best options possible.

So When Do I Use A Broker?

● When you are unsure of your credit history.
● When you haven’t been in business for very long.
● If you need a large budget loan or lease.
● If you need a lease with specific terms.
● In the event that you need a loan faster than traditional banks.
There are other benefits to having a broker, but the ones listed above are pretty common
reasons that businesses use a loan broker.

How Long Does Equipment Financing And Leasing Take
To Complete?

A broker can make the application time and arrangement time shorter. Assuming you company
uses a broker, there are less things to worry about:
● Your company doesn’t have to search for a lender or lessor. Brokers already have
contacts in place.
● The broker determines what you can qualify for, you don’t have to waste time working
with a client who can’t help you.
● Brokers have all of the legal documents and contracts ready for deals. You don’t need to
get those created.
● The broker’s interests align with yours. The broker gets paid after the deal closes.
● The broker handles the negotiations for you.
● Online lending is proven to have a higher rate of success than all banks. Brokers often
use online lending to meet a variety of business needs. (Big or small)

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