Whether you’ve financed equipment before or you’re new to the game, sometimes the terms you encounter along the way can be downright confusing. To make things a little easier on yourself during the financing process, take the time now to learn some of the terms and phrases you might encounter.
Equipment Financing
If you’re looking into getting funds to afford new equipment, you probably already know a bit about equipment financing, but you might not know exactly what it is and how it works. Basically, a lender gives you the funds to purchase the equipment you need. The equipment is in your name, but you must repay the lender according to the previously agreed upon terms. Once the financing agreement ends, you keep the equipment and no longer make payments.
Equipment Leasing
Equipment leasing is quite similar to financing, but there is one striking distinction. With leasing, the lender purchases the equipment and it's in their name. You will pay each month to retain use of the equipment. It may sound like renting, but the leases typically span several years and can end with you owning the equipment. Learn the difference between equipment leasing and renting here.
When getting ready to lease new equipment for your business, the lure of brand new equipment can be hard to resist, but is it really the best option long-term? Oftentimes, leasing used equipment makes better business sense.
Lease-To-Own
Lease-to-own refers to a leasing plan that ends with you owning the equipment. It’s similar to financing, but has some key differences. With financing, the equipment is always in your name. With lease-to-own, the equipment starts in the name of the lender, but is transferred to you at the end. Monthly payments tend to be lower, but an end-of-lease balloon payment may come into play. This is typically between 10-20% of the equipment cost and is decided before you sign on the dotted line.
Flexible Financing
Flexible financing is a bit of a buzz word in the industry. It typically refers to a financing agreement or lease with special terms customized to meet the customer’s needs. Though a flexible financing plan can be 100% unique to you, there are a few popular plans.
- Deferred Payment Plan (Buy Now, Pay Later)
- You can put off the first few payments. This plan allows the equipment to help you bring in higher profits before paying.
- No Money Down (100% financing)
- This allows you to get equipment with no down payment. You won’t have to worry about eating up your liquidity.
- Skip Payment
- With this plan, you can “skip” the monthly payment during slow months. The exact plan for the payment is finalized before the lease/agreement starts.
- Step Payment
- You gradually make higher payments as the lease goes on. This allows you to use the profits coming in from the equipment for the payments without drastically affecting the length of your lease.
Term Length
This one is simple! The term length refers to the number of months your plan will last. Typically, plans last 36-60 months, but they can be shorter and longer to fit your needs.
Armed with the knowledge of these five terms, you’re ready to get your perfect equipment financing plan! But if you’re still a little confused, don’t worry too much. An expert financing consultant will be able to walk you through any parts you don’t understand.