Equipment Financing Tips
If you are planning to buy equipment of any kind, you will appreciate the fact that it can be too costly to purchase cash because the cost of some of the equipment is too high. That is why there are numerous types of finance agreements available so that companies can make their choices. If you cannot pay the whole amount for the equipment you are interested in, you should be looking for an arrangement that allows you to get the equipment, own, and use it while you pay for it.
The other common option is to lease the equipment for some time. Equipment finance agreement (EFA) is a common type of asset financing where the companies and individuals are granted ownership of the equipment up front. Then they are obligated to pay an agreed amount either monthly or annually depending on the agreement. The equipment finance agreement is similar to financing a car.
The other option for getting a piece of equipment to use is the fair market leases (FMV), and this one is designed for customers who are looking for tax benefits. The option to purchase the equipment is determined at the maturity of the lease. The FMVs are, in most cases, limited to the equipment usage hours every year. As a customer, you have the option of obtaining new equipment every year, which enables you to keep your operations running smoothly.
$1 Lease, on the other hand, is an arrangement where the lender owns the equipment until the end of the term, after which the customer has the option of returning the equipment to get a new one or pay for it with the dollar. The 10% PO lease is another equipment finance option that is suited for customers who are looking for a lower payment, and at the end of the lease maturity, they can purchase the equipment at the stated amount.
The equipment finance agreement is the most preferred option by most companies and individuals because they have come with numerous advantages. The EFA comes in as a bridge between a loan and a lease. There is some form of avoidance of liability in equipment finance agreements. For instance, if you lease medical equipment and the machine causes an untimely death, the owner of the equipment can be sued. In this case, the owner is the lessor while the user is the lessee. In such circumstances, both the owner and user might be subject to litigation while the finance provider will not.
There are recent laws that have been put in place to protect lenders from such kinds of litigation.
When compared to bank loans, the equipment finance agreement is advantageous. When you go for a bank loan, the bank, in most cases, will apply a lien on your assets, which includes the account receivables as security for the loan. However, when it comes to the EFA, it is not secured by your assets, but the agreement is limited to the equipment that you are applying financing for.