Are you looking for the right deal on equipment finance? Equipment finance isn’t as straightforward as something is as car finance is. Equipment finance is tricky depending on what kind of equipment you’re looking to acquire.
Cars generally depreciate over time at a uniform rate. Equipment such as computers can depreciate in seconds, when completely new processors or operating systems come to market. Other heavy machinery can retain value or increase in value – imagine owning one of the few vinyl record pressing machines now! This guide gives you a primer on choosing the right equipment finance for your business.
First you have to decide if your business will benefit more from outright ownership or leasing your equipment. If you think equipment ownership is right for you, the equipment you purchase will become an asset.
You can finance this equipment with a chattel mortgage or a hire purchase. Chattel mortgages are much like car or vehicle loans – you take ownership of the equipment and pay off the loan until you’ve paid off the mortgage. A hire purchase works in much the same way, except your ban or financier “hires” out the equipment to you until the loan is paid off, and ownership passes to you.
The benefit to this is you won’t have to put any money down or have an existing asset. The equipment itself is the security. You can also deduct depreciation and interest, plus lenders can tailor loans to your cash flow situation.
Leasing equipment is best for industries and businesses that need the latest technology or components to keep ahead of the competition. You won’t have to tie up any of your capital in buying an asset since you’re only leasing equipment for a set period.
You gain the benefits of business finance – claiming deductions on interest and depreciation. Since there’s residual value at the end of the lease, you will have lower repayments compared with buying.
This gives you an option to buy (pay the residual), trade your equipment in at the end of the lease or walk away.
If you have been operating for a while and have many equipment assets, you can sell your existing equipment to a bank or financier in a sale and lease/hire back arrangement. You essentially hire back the equipment from your financier. This frees up capital for other areas of the business.
Remember to consult with your accountant or financial expert to see which equipment finance option is best for you and your business.
Bill Tsouvalas is founder and managing director at Savvy Finance + Insurance. He has been working in the vehicle & asset finance business for over 8 years. He also writes car reviews and articles on car finance, chattel mortgage, insurance, consumer protection and insurance related topics. For more information on equipment finance or a free quote, visit Savvy’s equipment finance page.