Understanding Equipment Finance

Equipment Finance Perth is a vital part of any small to mid-sized business’s operations. An equipment financing agreement is viewed much like a loan agreement in that it describes the arrangement for the repayment of equipment financing, often referred to as equipment financing. This article will review some of the critical items of information to consider when creating such an agreement. These include:

– Equipment leasing vs. bank loans. There are many differences between equipment leasing and bank loans and between equipment finance and bank financing. For starters, equipment leases are much more flexible than bank loans and do not have the same pitfalls as bank loans (for instance, they often charge very high-interest rates). They also do not require long-term commitments. On the other hand, equipment financing usually has terms that require payments over several years, with a longer-term commitment required if the equipment is used for commercial purposes (i.e., offices).

– Key terms. When it comes to equipment financing options, several different words can be associated with such funding. Depending upon the type of financing and terms involved, lenders will use slightly varying terminology to describe the process. Here is a list of some commonly used words:

Cash Flow. This is how the equipment financing terms will be presented to a seller at the transaction time. In most cases, it refers to the ability to pay back the loan in full at any point during the term of the financing (which can range from one year to 30 years). Lenders will want to look at the available cash flow to determine the appropriate terms and rate(s) for equipment financing. Most banks and many equipment finance companies use a percentage figure of cash flow as their primary rating standard, so it will be essential to choose one with a similar figure to the current market.

Lease Option. An equipment finance agreement will outline the details of the lease of the property under consideration. It will specify what happens if the lessee decides to terminate the contract within the specified period (usually a year). Also, it will explain how much down payment is required and how long it will take to pay off the balance due. This is just the basic outline, and there are many details of the lease option agreement that will vary depending on the specific equipment finance agreement that is being considered.

Fixed-Rate Term. This is where a certain amount of the down payment will be paid over a set period. The interest rate will remain the same, and any escalation or change in the cash flow rates on the financing will not affect the total payment agreed upon. Equipment financing options that are using this option will be best for businesses that expect stable cash flow conditions over the lease term. In most cases, this is the best financing option available when financing equipment requires minimal down payments.

Debt Financing Options. There are also many options available to business owners who need to finance the additional equipment. These include equipment leasing, equipment financing, and capital financing options. Equipment financing refers to a business using funds from a bank to buy and then lease the equipment. Equipment leasing involves a company providing short-term funding for the cost of the equipment and then paying off the loan within the specified period (usually a few years)

Capital Financing Options. Capital financing means financing a business’s net purchase of assets using a variety of lending sources. Equipment financing can either be secured or unsecured. Fast equipment financing involves a lien being placed on the investment being financed. Unsecured equipment financing only allows the owner to borrow against the value of their personal property.