Equipment Financing Terms You Need To Understand
If you own a business and use heavy or special equipment in order to run your day-to-day operations, you may already be familiar with equipment financing. If you’re new to the business world and are just starting out, equipment financing may be something you will encounter here very soon.
Either way, when trying to get financing for your equipment, it’s important to make sure you understand the language and terms used when trying to set up agreements with financing companies. The more you understand about the process and terms being used, the better prepared you’ll be to make smart financial decisions.
Here are some of the top equipment financing terms to know:
This is a term in the industry that gets used quite a bit but means a few different things. In its most basic sense, it refers to an agreement you make with a financial institution that has been customized to the needs of your business. There are times where the agreement you have is 100% customized, but most of the time there are recurring plans that fall under “flexible financing” that many businesses end up using. Some of these plans include:
- Step Payment Plans – In this sort of setup, your payments go up as the lease goes on. This gives you some reprieve early on in the agreement in order to make up for it later.
- Deferred Payment Plan – In this setup, you can defer your first few payments to try and maximize the profitability of using the equipment when you first get it before starting to make payments.
- Skip Payment Plan – This plan allows you to skip some payments during your slow months. You’ll have to make up for it later, but this allows you to account for seasonal slow periods without hurting cash flow.
- No Down Payment – This setup lets you get access to the equipment without having to make any down payments. The item is 100% financed in the loan, but you are able to get access without having to sacrifice liquidity.
Equipment leasing is a term that relates to financing, but in this sort of a setup the lender actually is the one that purchases the equipment and owns it. You’ll pay the lender for access to the equipment each month, similar to renting. At the end of the lease agreement, many times there is the opportunity for you to purchase the equipment.