In need of financing for new business equipment? For most business owners, a traditional bank may be the first place you think of when it comes to seeking out financing for these purchases—but it isn’t necessarily the best option.
Equipment financing agreements (EFAs) may look similar to a normal bank loan, but there are stark benefits to using an EFA over other types of financing. If you’re unfamiliar with this financing option, here’s an overview to help you understand EFAs and their benefits to your business.
An equipment financing agreement (EFA) is a type of business loan that allows for equipment ownership to be handed over to the customer upfront, with the expectation that the customer will continue to make payments on that equipment.
EFAs are structured and administered like auto dealerships provide their own vehicle financing. The structure of this agreement presents unique benefits to both the company offering the financing, as well as the client in need of equipment.
There are some crucial differences between an EFA and a regular bank loan. For one, bank loans don’t allow the business to assume ownership of equipment at the start of the repayment period.
In addition, banks require much more intensive and slow application processes, which can frustrate businesses looking for inexpensive equipment financing. The application process is often complicated by the bank’s lack of familiarity with equipment financing, and their limits in evaluating the importance of that equipment to an applicant’s business operations.
Financing and leasing have very different implications for businesses. The most obvious difference is that, with leasing, you don’t own your equipment—instead, you have an option to purchase equipment outright at the end of the lease period.
With financing, ownership is transferred at the start of the repayment period. This allows you to use your equipment as collateral for your financing, and creates the ability to leverage tax advantages, such as deducting depreciation from your taxes owed.
Why would a business choose equipment financing over the traditional loans offered by a bank? Here are a few reasons:
In addition to the above benefits of an EFA compared to a business loan, your business will also enjoy the following advantages:
Equipment financing agreements were developed as a specific kind of financial product to serve a specific business need. If you’re looking for ways to purchase essential equipment for your business, you’re unlikely to find a more business-friendly option than EFAs through a trusted financing partner.
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