AGEs offer several key benefits to companies that need financing for key business equipment. These advantages include: On the other hand, if the equipment requires frequent upgrades or has been obsolete for several years (example: computer), owning the equipment does not offer many advantages. An operating lease is usually the best financing option for this type of equipment. From a more practical perspective, it can be uncomfortable for some lenders who have more experience with lending than leasing to include traditional rental language in a recognized loan document. If this is the case, the benefits of finding that EFA obligations are absolute and unconditional can be outweighed by the need to appease a banker. Q: If the equipment lease and financing deals are so similar, I have to ask you again, why so much fuss? A: Well, the obvious advantage is the accounting treatments associated with owning equipment. Contact your CPA and see if the tax benefits associated with owning equipment outweigh the benefits of full amortization of lease payments. But the real benefit of equipment financing agreements is when you compare them to typical bank installment loans – when you compare apples to apples on a bank loan offered to an equipment loan. Unlike an EFA (Equipment Finance Agreement), a $1 call option lease is if the lender owns the equipment at the end of the term.
The tenant (customer) then has the option to return the new equipment or purchase it for $1. Some industries or companies prefer this type of rental product because it can have accounting advantages. The wording regarding the payment of taxes, especially property taxes, needs to be checked, as the equipment will be clearly in the possession of the borrower. The wording that describes sublease and assignments by the borrower needs to be revised so that equipment is not sublet in the case of a loan agreement and, unlike lease obligations, loans are traditionally not transferable. In some states, the right to repay a loan in advance may be implied, as opposed to the right to return the equipment before the end of the lease term, unless expressly waived. An important decision for some landlords is whether liability insurance is required in an EPT. It is much less likely that the lender will be successfully sued under an EPT for damage caused by the equipment warranty than the owner of the equipment under an actual lease. Nevertheless, it may not be easy for many lenders or their banks to abandon the liability coverage requirement.
Similar editorial problems arise in the section on general remuneration, which can be shortened if space is problematic. Ultimately, EFAs tend to close much faster than other types of business loans, which provides funds faster and allows for a faster start to the equipment manufacturing process. Since many EFAs do not require a down payment, the secure payment process is removed, allowing for faster financing while maintaining your cash reserves. An EPT is like a loan because it creates ownership of the equipment: you get the financing in advance and buy the equipment directly, and then you repay the financing over time. The equipment appears on your company`s balance sheet as an asset. Q: So, what is all the excitement? People told me never to rent, but always to use an equipment financing contract. What for? A: To understand the excitement, let`s look at how and why equipment funding agreements have evolved. The main reason for equipment financing agreements is to avoid the owner`s liability. If you want to rent heavy construction equipment and the use of the equipment results in premature death, creative lawyers will sue the owner of the equipment. Who owns a lease? The owner. Who is the user? You.
Undoubtedly, the owner and user will be involved in a legal dispute in this situation. Under an equipment financing contract, the owner of the equipment is you, the user. Thus, only you, the user, will be involved in a legal dispute and the financial service provider will not, unless there is a creative lawyer. And, of course, the laws have changed to protect money lenders from litigation like this. It`s more than just a few optimizations for creating documents. Now that our small steps in the world of credit are becoming a competitive sprint, it may be wise to think about what equipment financing means and what we are doing in the near and distant future. Q: I don`t use construction equipment in my business, I need office equipment. Why am I being offered an equipment financing agreement in the first place? A: This is what puts lenders at ease. As the popularity of equipment finance contracts grew over the years, lenders viewed leases as obsolete, lagging, so to speak. But just like good fashion, equipment rental never goes out of style.
You can think of an equipment financing contract as a bridge between a lease and a loan. Once we`ve identified your exact needs, we can see which one works best for your business. It should be clear that the borrower owns the equipment from day one and provides the lender with primary security. This type of language, if included in a lease form, is often an afterthought. Unlike a lease, which is intended to serve as a guarantee, the EPT can clearly identify the equipment as a guarantee, which can bring benefits. For example, when granting a security right, it is not uncommon to include interests in the proceeds, such as . B claims when the equipment is leased (approved or not) and the proceeds of the insurance. Q: I have been told that in an equipment financing contract, I automatically own the equipment at the end of the term. Can I do this with leasing? A: Of course you can. Equipment rental with a nominal call option at the end of the term has existed since the beginning of the equipment lease. If you rent, you can either return the equipment at the end or exercise your purchase option.
Are you looking for fast and reliable financing for your next device purchase? Apply now. “We have been working with Madison Capital for over 15 years. They are our only leasing company. Allan and Nancy are both extremely responsive to our needs and have always been able to help us in the blink of an eye. They include financing big construction machinery and have really allowed us to make smart purchases to increase our efficiency. .