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What is Equipment Finance? -
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    What is Equipment Finance?

    What is equipment finance?

    With the precarious state of the global economy, being a growing business or an SME poses many challenges with respect to financing options. Not only are companies less inclined to splurge on capital expenditure, but the rapidly fast pace at which technology develops makes it difficult for businesses to stay on top of the competition. While innovation is what is needed to keep the economy afloat, less established businesses are often facedwith multiple challenges while sourcing the credit they need to survive. So in this vicious cycle, where do businesses turn to for their financing needs?

    Enter the concept of equipment finance, the best solution for businesses that are looking for a quick way to grow, without the burden of heavy upfront investment.

    How does equipment finance work?

    The primary difference between equipment finance and traditional leasing is that in the former, you pay for your equipment in installments and become the owner of the equipment over time, whereas in the latter, you are essentially renting the equipment for temporary use.

    Equipment finance is a particularly good option for most small businesses with limited cash flow, since most lenders in this field require no down payment, and cover the cost of the equipment in entirety. These loans typically operate at a fixed interest rate, with the equipment itself put up as collateral.

    This arrangement is beneficial to both, borrowers and lenders. For borrowers, it means bypassing the challenges associated with more traditional means of financing like hefty upfront fees and extensive documentation, and having the ability to repay their investment over time in manageable installments. Lenders, too, benefit from the security of having the equipment put up as collateral, and are assured of recovering their payment with interest over time.

    What are the benefits of equipment finance?

    The biggest pro of equipment finance for an SME is being able to invest in the best available technology and equipment without the need for an immediate down payment- particularly beneficial in the case of nascent stage businesses with limited working capital. This also allows SMEs to invest in other areas of research and development that could help their business grow.

    Repaying the investment in installments also allows SMEs to account for seasonal cash flows and customize a repayment cycle that ties in with their business needs.

    As with any method of borrowing, there are certain risks associated with opting for equipment financing, the foremost being the obsolescence of the equipment itself over time. However, many lenders make allowances for upgrades and replacements within the terms of the contract, which is an option that one must explore.

    When opting for this method of financing, it is advisable to hire the expertise of a financial consultant, who can help you optimize your investment plan and get the best possible terms for your equipment finance needs.

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