Equipment finance

Equipment financing is a type of business loan, which enables businesses to purchase equipment and machinery on credit via an operating lease, hire purchase, or a finance lease. Hire purchase is short-term and best suited to equipment that you plan on replacing after the lease ends, in contrast, operating leases are long-term and it's often possible to purchase the asset at the end of the lease period. A finance lease is a type of equipment lease where the borrower (or 'lessee') rents an asset for most of the item's useful life. 

Equipment financing loans

The three types of equipment financing mentioned above allow a business to have the latest equipment and pay for it through monthly instalments with interest added. The equipment is used as security, so if you fail to meet repayments the equipment will be taken back by the lender. In the case of a capital lease, once the loan is paid in full, the business owns the piece of equipment. Equipment financing is a type of asset finance. The lender will purchase the equipment and insurers and maintain it. The business owner agrees to rent the equipment for a set period of time from 1 year up to 7 years.

This type of finance is popular for agriculture businesses. Farmers use expensive equipment to create efficiencies in their business, which leads to higher out and turnover. Yet, it often doesn’t make sense to put cash flow at risk to purchase this machinery up front. Another example would be the airline industry. Airlines often lease their plane over long-term leases in most cases, stretching from one up to twenty-five years.

Benefits of equipment financing

Very few businesses have enough cash on hand to be able to purchase expensive equipment outright. Especially for new businesses, that amount of cash could seriously jeopardise cash flow if paid out for new equipment. For more established businesses, it also makes sense not to purchase equipment, especially if they intend on swapping it for a newer model in the future. This allows business owners to avoid dipping into cash reserves or working capital that can be used instead for business growth initiatives and to improve cash flow. 

1. Tax efficiency Some types of equipment finance like equipment leasing and sale and leaseback are more tax efficient than buying outright. That's because when you lease an asset it's a monthly expense that is tax deductible.

2. Easy to budget and manage Equipment finance gives you predictable payments so you can spread the cost over time. That means that managing cash flow is easier so you can focus on running the business.

3. Flexibility and scalability If you finance a piece of equipment and your business starts growing, you can get more quickly without a large financial outlay. Whether you're ramping up production or getting extra vehicles, equipment finance is a great way to grow your business.

4. Access to other lines of credit One of the lesser-known but important reasons to use equipment leasing for buying equipment rather than buying it outright is access to other lines of credit. For similar reasons as tax efficiency, equipment finance is usually a predictable monthly expense, which means you can get another type of business finance alongside it. This is a huge advantage for some businesses — you could get the equipment you need, and take out a business loan for marketing, for example.

Types of businesses that use equipment loans

There's an almost limitless amount of industries and sectors eligible for equipment finance.  

• Bar and pub

• Restaurant and takeaway

• Café, bakery and coffee shop

• Construction

• Events

• Agriculture and farming

• Buses, coaches, cars, vans, trucks and haulage

• Finance for a garage or mechanic

• Laundry and dry cleaning equipment finance

• Manufacturing and heavy industry

• Office and IT equipment

• Racking warehouse equipment and shelving

• Refrigeration and air conditioning

How do I get an equipment loan?

One of the advantages of equipment loans is that, if you’re eligible, they are quick to get, in fact, you could be approved for equipment finance in just 24 hours. This is great news for businesses that can’t wait weeks or months to purchase, replace or repair critical equipment.  

1. To get started, confirm how much finance you need, what it’s for and how quickly you need the funds. 

2. Our smart technology will compare 100+ lenders and match you with the right finance options for your needs.

3. A finance specialist will help you through the process from application to receiving your funds.

How long can you finance equipment?

The amount of time you can take out an equipment loan will depend on a number of factors, including how expensive the equipment is, how much it is likely to lose its value and for how long the lender is willing to offer you the finance. It is possible to finance equipment for as little as a year up to seven years, and anywhere in between. 

What are the different types of equipment financing?

There are lots of different ways you can fund large equipment purchases. Here are some of them: