Ask the Lender – “What are my financing options for purchasing equipment?”
There are several options to consider when financing equipment. Most often equipment is purchased with conventional bank financing. Under conventional financing you can expect the bank to finance up to 80% of the cost of new equipment or less depending on the age and use of the equipment. Repayment terms are typically set for 7 years or less and rates can be fixed or variable during that time.
For larger equipment purchases or in instances when there isn’t enough cash, or equity for a down payment, other financing programs can be utilized. The State of Ohio 166 program allows a business owner to purchase equipment with as little as 10% down. Forty percent of the funds for the rest of the purchase would come from the program and the remaining 50% would be financed by the bank. While there are additional upfront costs involved, the program provides a fixed rate on the 40% it provides as well as a term of up to 10 years.
Leasing may also be an option a business would want to consider. Leasing offers many potential benefits over purchasing but has its drawbacks as well. Leasing generally requires a smaller upfront investment and results in lower monthly payments. Also, leases are accounted for differently than loans which could result in some tax benefits for the business*.
Additionally, some leases include maintenance agreements which could lessen or eliminate those costs over the term of the lease. As a result of these benefits leases are generally more expensive over the entirety of the agreement. Owners must also plan for the end of the lease which will either have a buyout option that would need funded or the equipment is returned which creates a need to replace the equipment if it is still needed.
It is not always possible but it is best to plan your equipment purchase well before you actually need it. Your lender will help you weigh your options and choose the best course of action for your particular circumstances. If you are thinking about purchasing equipment now or think that you will need to make a purchase in the upcoming year please call your lender today to get your plan in place.