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Business equipment financing

What is business equipment financing?

Business equipment financing allows businesses to access business equipment, usually via a loan or lease arrangement.

Many businesses need equipment in order to operate, but that equipment can be costly. That’s why an increasing number of businesses are turning to equipment financing – a type of asset finance.

With business equipment financing, businesses can access the funds to purchase the equipment they need to operate and grow, while also protecting their cash flow.

What is equipment financing?

Many businesses need equipment in order to operate, but that equipment can be costly. That’s why an increasing number of businesses are turning to equipment financing – a type of asset finance.

With business equipment financing, businesses can access the funds to purchase the equipment they need to operate and grow, while also protecting their cash flow.

How does equipment financing work?

Equipment finance works in the following way:

  • The provider purchases the equipment
  • The business leases the equipment, paying monthly instalments over an agreed period of time, usually with interest
  • At the end of the agreement, the business will either own the equipment, or will have the option to upgrade, return, or buy it, depending on the type of equipment finance.

Types of equipment financing

There are several different types of equipment financing for businesses and the way equipment financing works varies slightly depending on the type of finance. The main types of equipment financing are:

Operating lease

An operating lease is typically used when the business won’t need the equipment for the whole of its lifespan, as it allows them to replace and upgrade their equipment when they need to.

The amount paid over the term of the lease is usually less than the cost of buying the equipment outright, but the provider retains full ownership of the equipment and is responsible for maintenance costs during the lease term.

Finance lease

When a business takes out a finance lease, they pay fixed monthly payments to cover the full cost of the equipment. This allows the business to spread the cost and manage cash flow. Once all the instalments have been paid, the business will typically have the option to extend the lease, keep the equipment, or return it.

Sale and leaseback

This type of equipment financing allows businesses to raise capital by selling their existing equipment to a finance provider and then leasing it back. This means they can access valuable funds without losing the use of their essential equipment.

Deferred payments

With deferred payments, you won’t start paying for the equipment until an agreed date. This is ideal for businesses who need access to equipment urgently, but don’t want to start making payments straight away.

What can equipment financing be used for?

Business equipment financing can be used for a wide variety of equipment, including:

  • Medical equipment
  • IT equipment
  • Manufacturing equipment
  • Office furniture
  • Construction equipment
  • Vehicles and forklifts
  • Machinery
  • Restaurant and retail equipment

Benefits of equipment financing

Equipment financing offers a number of advantages for businesses, including:

Increase tax efficiency

Equipment financing options such as equipment leasing and sale and leaseback financing are not only more affordable than buying equipment outright, but they are also more tax-efficient.

Why? When you lease equipment, it is classed as a monthly business expense, rather than an asset.

More flexibility

example, your business expands and you need to access more equipment quickly, you can do so without needing to make a significant capital investment. The same applies if you want to upgrade to the latest, state-of-the-art equipment.

Cash Flow

When you use business equipment finance to buy assets for your business, you’ll pay regular monthly instalments, rather than a single large payment. This allows you to retain cash within the business or use it elsewhere, and better manage cash flow, making monthly outgoings more predictable.

Acces the latest technology

Technology is constantly changing, with new equipment and assets becoming available at a rapid rate. This can make it expensive for businesses to acquire the technology they need to grow and keep up with their competitors.

Fast application process

Compared to more traditional forms of business finance, such as loans, the application process for business equipment finance is usually relatively quick and easy. This means you can access the equipment you need to grow your business, fast.

Lower interest rates

Equipment financing typically allows businesses to access lower interest rates than more traditional forms of business financing, such as bank loans.

Easier to qualify

As well as offering better terms, business equipment financing is typically easier to qualify for than traditional business finance options, as the equipment itself acts as the security. 

Challenges of equipment financing

As with any type of business finance, if you’re considering business equipment financing, it’s important to be aware of any potential disadvantages, including:

Ownership

With most types of equipment financing, the provider owns the equipment throughout the term of the lease. This means that, if you are unable to pay your agreed monthly instalments, the provider may repossess the equipment.

Expense

Interest is charged when you acquire equipment through financing plans, so it’s important to look at the total amount you’ll be paying compared to the value of the equipment or asset.

Business equipment financing with CHG-MERIDIAN

At CHG-MERIDIAN, we provide business equipment financing solutions for businesses across a range of sectors. As experts in the leasing of the latest equipment and technology, we can offer bespoke financial models designed around your specific volumes, helping to simplify cost control while reducing investment risk.

To find out more about our equipment financing solutions, please get in touch.