Every business needs some kind of equipment. This is one of the reasons why owners of small businesses like to seek the help of external financing agencies.
Equipment generally includes desks, computers, farming tools, and heavy machinery. All these types of working capital and machinery can be borrowed without paying the total price right at the beginning.
Even if this concept sounds simple, it is important to understand how equipment finance works. There are different situations in which the equipment should be financed. Other times, buying the equipment would be favorable in the long-run. These are good questions to know the answers to before starting your search for equipment finance.
As a small business, you should look for options to finance your equipment in these situations:
- You need equipment that is expensive and is unable to get the equipment right at the beginning.
- You would like to acquire equipment that has a very short shelf life, or you require the latest technology that is available in the market.
- Some combination of these scenarios.
Which is the Best Equipment Financing Company?
There are certain rules that one should follow while looking for an equipment finance company. These are:
- Finding the Right Lessor: The simplest way to find the right lessor is to find out the other companies which they’re servicing in the industry. Typically, lessors work for resales and companies within the industry. In spite of this, there are lessors who are very transparent about the industries they work for. This transparency helps you in identifying the best financing company for you based on what your competition is using.
- Comparing the Fees and the Rates Offered by the Lessor: Even though you should be able to get the best equipment finance deal, you shouldn’t need to pay extra for what is essentially the nature of the market. It is much easier when it comes to dealing with lenders who are transparent and don’t hide anything. Other times… this article will come in handy.
There are certain types of fees that one should know about when it comes to equipment leasing. There are:
- The rate of interest: This is the biggest cost accrued when it comes to equipment finance. Typically, it is best to go for the lower rate. However, it is important to understand how the rate is applied.
- The fee related to origination: This is commonly seen in loans, not in leases. This is the fee that is applied right at the start of the business discussion. Typically, this is subtracted from the amount of money that is received when the individual gets the loan capital.
- Fees related to administration: This can be explained in different ways. However, this is the fee that is charged when it comes to account servicing. This is usually a one-time charge or during specific time intervals.
- Down-payment: This is the percentage that is expected when one has to pay the costs accrued from your own pocket. This is common with loans and leases. For leases, one is expected to pay the first and last month’s rent right at the front.
- Expected frequency of payment: This is the dollar numbers that one is expected to pay every billing cycle. This usually happens every month. The higher monthly premiums you pay, the shorter time it’d take for you to finish off with your debt.
- Residual money: This is the amount that one has at the end of the lease contract. If your initial payment is high then this value would be low, as is obvious
Armed with all this information, it shouldn’t be much of a hassle for you to find the right equipment financing company for your needs.