There was a time when you did not need to know anything about equipment loans and financing. You could either get it or not and that was the end of it. However, things have gotten a lot more complicated nowadays and you need to be aware of at least the basic concepts that run this industry today. We are sharing some useful points that you must keep in mind about getting new equipment through loans or financing options.
1. It is One of the Least Costly Financing Types
As compared to other types of financing that you see in the market, equipment financing typically costs a lot less. This is because the lenders do not ask for any external collateral from the borrower and use the equipment itself as the collateral. This allows them to avoid unsecured funding and thereby decreases borrowing costs for the customers looking to buy equipment for their business. People are taking full advantage of that situation and buying expensive equipment all the time since there is no risk of losing any business assets if you are unable to pay for the equipment you buy.
2. Vendor Choice May or May Not be Available
In some of the new financing and loan options provided by lenders, they take away the option of choosing which vendor you want to buy your equipment from. This may be acceptable in some rare cases, but we generally find it to be an unnecessary limitation that you need to face. Furthermore, it could also impact your work, so make sure that you have the option of choosing the vendor you want to buy any machinery. If a lender is not allowing you to choose, you would be better off going to someone else for the loan.
3. Payment Periods Vary According to Equipment and Lender Policies
There is no fixed period that you need to follow to pay the money that you owe for the equipment. Each lender has their own policies regarding the payment of loans, and you must know what the payment plan is for the equipment you have selected. Typically, the time is around five years, but it can be more or less as per the policy set forth by the lender. Make sure you are fully aware of the terms of your loan agreement with the lender and go through the terms and conditions carefully before signing. You do not want to find yourself caught in any unnecessary payment issues.
4. Equipment Loans are Tax Deductible
This is something that a lot of people do not know and therefore, they miss out on a big chunk of their money. Typically, the value set by IRS for deduction is 100% which means you can keep that entire amount for yourself. Furthermore, Section 179 of the US tax code also says that you can deduct some of the price of the equipment as per the service year of the equipment. The maximum deductible amount is $500,000 for a purchase of $2,010,000.
5. No Difficulties Related to Credit History and Business Performance
Since the lender is not considering any of your business assets for the purchase, they do not care about the credit history of your business or yourself. They also do not require any detailed performance reports to see if you meet a certain standard. Since the equipment itself is being used as collateral, they are comfortable with providing you the loan without much investigation.
Getting equipment loans or financing options can be quite an easy task these days. However, you should still consider multiple options and find out who has the best offer before deciding.