Equipment Finance
Equipment finance provides a way to avoid the large upfront cost of new equipment purchases, by spreading the cost over affordable monthly payments, potentially making business cash flow management easier. An equipment finance agreement typically involves a lender purchasing the asset you need, then loaning it to your business whilst you repay the item’s value plus interest. The funds are borrowed under one of two types of agreement, an Equipment Lease or a Hire Purchase agreement.
In summary:
- Equipment finance agreements usually have a repayment term of between 2 and 6 years, but can go up to 10 years in some cases.
- Monthly payment amounts will depend on the repayment term, the interest rate, and also whether the Equipment finance is a Hire Purchase agreement or an Equipment Lease agreement.
- With a Hire Purchase agreement the lender owns the asset purchased until finance payments are complete. At the end of the term, the customer will buy the asset either via payment of a nominal fee or via a balloon payment, depending on the type of Hire Purchase agreement chosen. A Hire Purchase agreement requires that clients pay both a larger deposit when compared to an Equipment Lease agreement, and the VAT upfront, but after the repayment term completes clients have guaranteed ownership of the asset.
- An Equipment Lease agreement is essentially a rental agreement, so interest payments can normally be deducted from company profits before calculating tax. With Equipment Lease agreements deposits are not always necessary, and interest and VAT amounts are also included in the monthly fee. At the end of the term, the clients can keep renting, give the asset back to the lender, or often arrange to purchase the item for an additional fee.
- Equipment finance is available to start up businesses, who often find it easier to achieve than obtaining a business loan. Start ups carry a larger risk than established businesses and so Equipment finance, being secured on the asset itself, reduces the risk for the lender, meaning they may be more likely to offer finance this way.
- Businesses can purchase or lease a wide range of equipment via Equipment Finance. Common types of equipment eligible include machinery, vehicles, technology and IT equipment, construction equipment, medical equipment, manufacturing tools, office furniture, catering equipment, gym equipment and many more.