Business Equipment financing
Financing of equipment acquisition for businesses, especially in the manufacturing sectors, can be a nightmare. Many business people will always shy away from establishing plants for manufacture due to prohibitive prices.
This problem is even worse in developing economies and has limited the ability to participate in value addition, which is, as you may be aware, the most profitable way of doing business. There are several methods that equipment can be sourced for a business.
This article will try to discuss the different modes that a business can choose from when seeking to finance equipment acquisition.
Equipment leasing
Leasing of equipments can be defined as an agreement that specifies the rights and obligations between a Lessor (who owns equipment) and a Lessee (to whom the equipment lease agreement gives certain rights of possession and use). This mode of financing is appropriate for businesses, both big and small, at any stage of their development.
The adequacy of equipment leasing and their supply in the market has been increased by the diversion of investments from stocks to assets. The rates involved will always depend on the company approached by the investor.
Once the equipment’s use has lapsed, the lessee has options of purchasing it at the fair market rates, continuing in the lease agreement, lease better equipment or simply return.
The advantages of leasing that most companies offer include fast and flexible credit facilities and off course, industry specialists who will be available to offer any technical assistance if and when required
Financing through hire purchase
Hiring of equipments is similar to any hire purchase agreement where the seller “sells” the business equipment on credit to a buyer but only transfers title once the buyer has completed paying the purchase price.
Business people who choose to finance the acquisition of business equipment through this legal arrangement must understand the terms, conditions and warranties involved. For example, there are certain inalienable rights for the buyer, even if title remains with the seller. These will include:
- the right to quiet possession;
- the right to receive title upon fulfillment of the contract;
- a guarantee as to the merchantability of the goods; and
- the need for the goods to correspond to the sample.
This can be defined as a mortgage over goods that are to be financed by the lender. Just like a mortgage over property, chattels mortgages will mean that the lender has an interest in the equipment bought until such a time that the buyer will have fully paid the debt. Indeed, in most cases, the lender will be in possession of the title which is in the jointly owned by the parties. The beauty of these mortgages is that they are interest and tax friendly.
Conventional loans
Many lending institutions are in a position to extend loans to businesses for the purposes of financing the buying of business equipment. In fact, Companies such as Amerifund, who specialize in equipment financing, have loan packages such as “application only, no collateral financing package, established business application only loans, and structured financing.
Renting
This method works in the same way as the renting of real estate property. It assumes the fact that the user only pays for the usage of the equipment and returns it once he or she is through.
Although the above mentioned sources are almost specific to equipment financing, the adoption of other traditional methods like venture capital and angel financing may be welcome.
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