Equipment financing means a loan which can be used to buy such business related equipment which enable smooth functioning of your organization. With the help of equipment loans, a business can get periodic payments coming in with an inclusion of interest and principal over a certain fixed term. Similarly, on the part of lender, the may need a lien on equipment as security against the loan. As soon as the loan is paid fully, the ownership is transferred without any lien. The nature of an equipment loan could also sanction a lien on extra business assets or might need personal guarantee too. In case if a business fails to pay the loan, it could cause confiscation of business assets or even personal assets as well due to the conditions attached with equipment financing.
Just take the example of a restaurant which is being launched and has an immense amount of equipment needed including ovens, cooking ranges and fridges etc. Suppose that the equipment costs total $55,000. You have applied and are approved for an equipment loan equal to 80% of the equipment’s price. It will depict that remaining cost that you will have to bear will be 20%, and you can retain 80% in your cash reserves to offset rest of the other costs linked with a new business like the cost of the space, marketing and advertising, and permits and licenses.
Similarly, equipment financing is different from leasing where there the owner of equipment is paid a certain rent for usability of equipment over an agreed period of time. At conclusion of leasing term, unlike equipment financing, the equipment is returned to actual owner until if there is a further agreement. Frequently, the condition associated with leasing are less strict, nevertheless, if the equipment tends to be a constant need for your business, then paying up constant leases without prospects of ownership could be highly costly.
Operating a business could be tricky and equally exciting and especially when there are ample growth opportunities can be foreseen. Nonetheless, at times, it might be an uphill task to sort business financing out for taking your business to other stage of growth. In such circumstances, there could be varied external sources which may become a solution in difficult times to provide business financing.
For a business, regardless of new or old, there could be plenty of internal or external business financing sources. To name some, there may be the options of selling shares for large businesses or applying to different loans resources from organizations, government and creditors etc.