Small Business Equipment FinancingSmall business equipment financing decisions have in recent times become a matter of choice between borrowing to buy outright, or to use some form of small business equipment leasing programIn the past, obtaining equipment finance meant a trip to the bank, but now in addition to the bank, the small business owner has the choice of using a commercial finance broker to source equipment finance, or to decide to use the Vendor lease program provided by the equipment supplier. Equipment purchases help your small business to build a base of fixed assets, which can be used as collateral for future loans and working capital solutions.
The key figures used by lenders in making equipment finance decisions are primarily cash flow and debt ratios, which are calculated to give a credit score. This is one of the reasons behind the increase in popularity over the years, of small business equipment leasing programs. It seems it is now possible to buy just about anything on finance, from computer software, vehicles, heavy equipment, tools, plant and machinery, to small business office equipment. Leasing is not completely ignored by the banking industry. They work closely with vendors to put into place attractive leasing arrangements for their sales forces. Seldom does an owner receive a pricing proposal that does not include a leasing option. As small business equipment financing solutions go, leases have several advantages over purchasing. Lease financing allows owners to acquire more and/or higher-end equipment since down payment requirements are not as large as a loan. The term of the lease can be matched with the useful life of the equipment and owners can choose to structure a lease to include installation and essential maintenance. The risk of ownership often stays with the leasing company and instead of depreciating an asset using tax schedules, an owner can usually deduct one hundred percent of the lease payments as a business expense. At the end of a lease period operating leases require the equipment to be returned to the lessor (the bank or finance company), but in some cases the lease may have a nominal sum purchase option, or a guaranteed purchase amount (usually a multiple of the regular payments in the region of 5 to 10% of the purchase price). Other leases have a "Fair Market Value" purchase agreement where the amount is to be determined based on market conditions. Another small business equipment financing option available to owners that already own equipment is the equipment sale leaseback, more commonly known as sale and leaseback. This option, provides for the sale of an asset for cash to the finance company, while the asset remains on the seller's property with a contract to lease the asset back from the finance company for a regular payment. Much like the homeowner who takes out a home equity loan, the business gains needed cash to buy new equipment or use the funds to develop the business.
Small business owners still need to build the underlying assets of the business, with some asset purchases, building the lending community’s confidence. The current business reality is that more and more small businesses are turning to leasing as small business equipment financing solutions grow in popularity.
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