Equipment finance offers a practical solution to acquire the machinery and tools your business needs. This article breaks down how equipment finance works, its benefits, and the different ways it supports your business’s growth and efficiency.
How does equipment finance work?
Equipment finance is essentially a way to fund the purchase or lease of business equipment. Instead of paying the full equipment cost upfront, a finance provider will cover the cost. Your business will pay this back through instalments over time, including the principal, interest and any fees. This helps you keep your cash available for other aspects of your business, while still getting the equipment you need.
What are the benefits of equipment finance?
The main benefit of equipment finance is improved cash flow: it helps businesses maintain liquidity by avoiding large one-time payments. Payments are also predictable and spread over time, which aids in budgeting and financial planning.
What types of equipment can you finance?
It’s possible to finance almost any type of business equipment.
Here are common examples of equipment eligible to finance:
- Construction equipment like excavators, cranes or concrete mixers
- Manufacturing machinery including CNC machines and assembly line robots
- Medical equipment for healthcare providers
- Office technology equipment, such as computers
- Commercial vehicles, including trucks, vans, and company cars
- Point of sale systems and inventory management technology
What is the difference between a business loan and equipment finance?
While a business loan provides general funds for any business need, equipment finance is specifically tied to the acquisition of equipment. Business loans are usually unsecured and require a broader assessment of the company’s creditworthiness. Whereas equipment finance is secured against an asset, meaning lenders will consider the value of the equipment in their application assessment.
What are the different ways to finance equipment?
There are a few different ways to finance business equipment. Here’s an overview of the most common types:
Hire purchase
Hire purchase leads to ownership of the equipment after regular payments have been made over the agreed term. It’s great if you want to keep the equipment long term.
Finance lease
Using a finance lease, you make payments that cover the equipment’s value. At the end of the lease, you might buy it, return it, or extend the lease. It can be useful if you might want to own the equipment, and want to spread the costs.
Operating lease
An operating lease is more alike to renting. Your business pays to use the equipment for a shorter period of time and returns it when the lease ends. It’s useful for equipment that gets outdated quickly, or for temporary needs.
How long can you finance equipment for?
The length of time you can finance equipment for depends on the type of equipment.
Long term financing options are often available for durable assets that do not depreciate quickly (such as vehicles, plant and machinery or other heavy equipment). This could extend to up to five years.
Longer term options allow you to spread out the payments. This means that you make more payments of lower amounts.
Technology and any equipment that may become outdated quickly typically have shorter financing terms, such as a maximum of 24 months.
What are the eligibility criteria for equipment finance?
To qualify for equipment finance lenders typically consider:
- Your business credit score
- Your business financials, such as turnover and profit
- The lifespan and condition of the equipment being financed
- Whether the equipment is relevant for your business’ operations
- Security offered against the loan, which may include the equipment itself or other business assets
Applying for equipment finance
If you're looking to apply for equipment finance, you can search from over 100 UK lenders with Capitalise. We match you with the lenders that best meet your business needs and offer support through the application journey.
Equipment finance allows you to stay current with technology, enhance your business's efficiency, and grow without financial strain. Sign up to Capitalise for free today and finance your business equipment.
