A wide variety of businesses not only require a great deal of initial investment but also consecutive equipment acquisitions. Obtaining equipment on a cash basis, though desirable, is only a luxury for a few businesses because having so much capital tied up in equipment may be adverse to the firm’s financial position and cash flow situation.
What The Best Equipment Finance Entails
Instead of having to approach a bank or a financial institution for a loan for purposes of buying equipment, a company can rely on equipment finance. Here, the equipment dealer or seller covers the cost of the equipment.
The firm or individual may be required to come up with a deposit but this depends on the agreement with the equipment leasing company. The remaining balance together with interest is usually paid off in equal installments either monthly, quarterly, annually or any other duration agreed upon.
One form of equipment financing is leasing. In leasing, the lessee has the option to make only rental payments for use of property that is an operating lease or an agreement to retain ownership of the equipment at the end of the lease.
The value of the equipment at the end of the financing arrangement may be evaluated at the fair market value or refinanced in consideration of past payments already made by the lessee.
What A Firm Can Do To Ensure It Gets The Best Equipment Finance Deal
Obtaining the best equipment finance deal is the ultimate worry of any company or individual getting into a financing deal. The financing company will evaluate you based on the asset under consideration, business cash flow position and of course your credit rating.
The equipment leasing company tries to balance between maximizing its profit and retaining lessees in a competitive market. The firm should be generally aware of the prevailing market rate based on the equipment class. The particular rate levied on the firm will vary depending on its cash flow position and credit rating.
To obtain the best equipment finance deal, the firm should start by comparing as many leasing companies as possible. To determine if your company is getting a competitive financing structure, you should begin by finding out how the financing company makes money. This way you can easily tell if those conditions are uptight for your case or not. This knowledge, if used carefully, can even enable your company to obtain a financial advantage in the process.
There are factors that the company seeking financing can control on its own. The first, as mentioned above, is doing enough market research before settling on one financing company. In submitting expression of interest to the company of choice, you should submit all the relevant and supporting financial information especially with respect to cash flow position of the firm and its profitability.
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If the financial information is authentic, the lessee will secure the lease and will not be charged additional interest for risk of lending money to an unstable institution. The same goes without saying about the credit worthiness of the firm or individual seeking equipment financing.
Contract-Specific Factors Influencing An Equipment Financing Deal
The nature of the deal made by you and the lessor will also influence the overall cost of the contract. For instance, interim rent on your equipment. How long will the interim period be and how much will you pay?
Are the return conditions and notice requirements practical? Some equipment leasing companies have been known to make notice requirements difficult to meet. Not only does this result in default but it also increases costs. It should also be easy to return the equipment so that you do not have to extend your lease.
The fair market value should also be clearly defined or at least there should be a clear strategy in place that you and the leasing company can use to come up with one.
Many business owners will also be particularly concerned about terms and conditions regarding early cancellation of the agreement. Will you be penalized for this and is there a clear way of calculating how much you should pay? These and many other factors specific to the firm in question may necessitate use of a finance professional to help the company come up with the best equipment finance deal.
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