What is equipment finance?

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what is equipment finance

Here we study what is equipment finance? And equipment financing definition, it’s working and the types of equipment financing, equipment financing rates and companies that are involved in equipment financing with their loan amount, interest rates, penalty, and other things.

What is equipment finance?

The equipment financing is referred to as the financial instrument or a financial tool which helps the businessman or small business persons to purchase machinery or fixed asset in a business. Therefore, machinery, vehicles or other equipment are used on a lease or rental basis by the companies and business. Here, even small companies, business persons as well as large companies take advantage of equipment finance to improve cash flow and also improve the working capital.

The business persons and companies can also enjoy tax benefits while opting for equipment finance. Although, the interest rate, loan amount, and loan tenure differ from one bank to another. The equipment finance is a great option to consider in the case of start-up companies as they need equipment for a new business. 

Thus, the equipment financing definition states it is a financial tool that provides funding to business owners or small business persons to purchase machinery or fixed asset in a business.

How does equipment financing work?

Equipment financing is a type of loan which is used to purchase the equipment or machinery in a business. So, you need to pay back the amount of the loan with interest and the principal amount which is split down into periodic payments over a fixed term. Whereas, collateral security is also required on the loan amount. And when you pay back all the loan amounts then you become the owner of the equipment or machinery purchased on loan.

Whereas, in case of failure to pay back the loan it may result into repossession of your business assets or your personal assets if given a personal guarantee.

  • Note: Equipment financing and equipment leasing are different terms. As in equipment leasing, you pay rent of the equipment to the owner of the equipment for its usage. You do not become the owner.

Types of equipment financing:

There exist different types of equipment financing loans or the equipment financing options which are offered to small companies, business persons as well as large companies. These are as follows:

  • Manufacturing equipment loan

A manufacturing equipment loan is provided for the purpose of manufacturing goods in the business.

  • IT and office equipment loan

IT and office equipment loan is provided for office business which includes IT equipment like computers, laptops, projectors, and some other office IT pieces of equipment.

  • Construction equipment loan

A construction equipment loan is provided for the purpose of business which is into constructing business and types of equipment used for the purpose of construction.

  • Corporate Aviation equipment loan

A corporate Aviation equipment loan is provided for the purpose of the aviation industry and equipment related to the aviation industry, such as used at airports and on-flight.

  • Medical equipment loans

Medical equipment loans are provided for the purpose of equipment related to hospital and clinical materials.

  • Electronic and appliances

Electronic and appliances are provided for the purpose of electronic and appliances for a company.

Read Here- What is Net Working Capital How to Calculate Definition, Formula, Ratio

Types of machinery and equipment

There exist different types of machinery and equipment used in the business such as follows:

  • Compactors
  • Fork Lifts
  • Crushing Plants
  • Drills
  • Road Rollers
  • Compressors
  • Dozers
  • Tipper/Dumpers
  • Hot Mix Plants
  • Wheel Loaders
  • Reach Stackers
  • Cranes
  • Backhoe Loaders
  • Excavators
  • RMC Plants
  • Graders
  • Concrete Pumps
  • Transit Mixers
  • Pavers
  • Rock Breakers
  • DG Sets, etc.

Equipment financing rates

Although, the equipment financing rates differ from person or individual to individual as they are based on an applicant’s qualifications and current market conditions. Though, here we mention down some of the equipment financing rates for an equipment loan, as follows:

Equipment financing rates
Loan to Value Ratio Up to 100 %
Fixed Interest Rates 4.00 % – 12.75 %
Repayment Terms Several months up to 10 years or more
Funding Speed As little as 2 business days
Other Requirements minimum credit score

So points to be considered on equipment financing rates based on the table are as follows:

  • The Loan to Value Ratio should be Up to 100 %
  • The Fixed Interest Rates should be between 4.00 % to 12.75 %
  • Repayment Terms should be Several months up to 10 years or more
  • Funding Speed should be as low as 2 business days
  • Other Requirements includes that the credit score should be as minimum as possible

Read Here- Operating Leverage Formula | Example | Calculation | Analysis

Equipment financing companies

Some of the best equipment financing companies are as follows:

  • National Funding
  • Currency
  • Funding Circle
  • Crest Capital
  • CIT Bank

The interest rates, fees/penalties, loan amounts, time to funding after approval of equipment financing companies are as follows: 

Company Interest rate Fees/penalties Loan amounts Time to funding after approval
National funding Not listed Origination fee; no prepayment penalties Up to $150,000 1 business day
Currency Starting at 6.49% $295 documentation fee; no prepayment penalties Up to $500,000 2 business days
Funding circle 4.99% to 24.90% Origination fee between 3.49% and 6.99%; no prepayment penalties $25,000 to $500,000 5 business days
Crest capital Not listed $275 document fee; no prepayment penalties $5,000 to $500,000 Varies
CIT bank Starting at 5.49% No prepayment penalties $500,000 to $1,000,000 1 business day

Equipment financing calculator

You can also use equipment financing calculator online that can help you know the resultant equipment financing loan amount after adding interest for the desired time period. 

Conclusion:

Thus, by now you know what is equipment finance? And equipment financing definition, it’s working and the types of equipment financing, equipment financing rates and companies that are involved in equipment financing with their loan amount, interest rates, penalty, and other things. As, the equipment financing is referred to as the financial instrument or a financial tool which helps the businessman or small business persons to purchase machinery or fixed asset in a business. Therefore, machinery, vehicles or other equipment are used on a lease or rental basis by the companies and business. Here, even small companies, business persons as well as large companies take advantage of equipment finance to improve cash flow and also improve the working capital. Here, we successfully explained what is equipment finance?

Frequently Asked Questions related to what is equipment finance:

What is the equipment finance industry?

The equipment finance industry is an industry consisting of other industries which finance loan on equipment, and therefore includes the following as:

  • Manufacturing equipment loan
  • IT and office equipment loan
  • Construction equipment loan
  • Corporate Aviation equipment loan
  • Medical equipment loans
  • Electronic and appliances

What is an equipment loan?

An equipment loan is a financial tool which helps the businessman or small business persons to purchase machinery or fixed asset in a business. Therefore, machinery, vehicles, or other equipment are used on a lease or rental basis by the companies and businesses. Here, even small companies, business persons as well as large companies take advantage of equipment finance to improve cash flow and also improve the working capital.

How long can you finance equipment?

You can finance the equipment for a short period of about 36 months and can finance for a longer period too of 10 years or more, depending upon the amount of loan.

Who finances farm equipment?

The Agriculture Equipment Finance finances farm equipment.

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