Equipment loans are used to finance heavy equipment such as cranes, lift devices, and towing equipment. Medical equipment for dentists, veterinarians, and medical clinics also fall under this category. The lender will use the equipment as collateral. The loan terms vary but are usually financed based on the expected life of the equipment. A factor that a bank considers is if the equipment will become obsolete by the time the loan is repaid. Below are the secrets you should know about equipment loans.
New and used equipment can be deducted on your taxes. According to Section 179 for 2017, the deduction limit is $500k. The spending cap on equipment purchases is $2mm. This is the maximum dollar amount that can be spent on equipment. If the $2mm is exceeded, the deduction that is available is reduced to a dollar for dollar basis. Please consult with a tax professional to learn more about the tax benefits.
Financing for the entire amount
Some lenders are able to finance up to 100% of the costs for the equipment. The loan terms will vary depending on the life span of the equipment. They are typically financed based on the expected life of the equipment. A factor that a bank considers is if the equipment will become obsolete by the time the loan is repaid.
Lenders also offer a flexible loan to finance your equipment. Here is how it works: Your business is not sure about the costs or the number of equipment that is needed. Find a lender who offers flexible loans. You can get approved for a $250k flexible loan. Typically, flexible loans have a draw period of twelve months, during which you pay interest only.
Equipment leases are a great alternative if the business does not want to purchase and/or finance the equipment. There are two categories of leases, capital and operating. These two forms of leases are very similar to a loan. With a capital lease, the business receives all the benefits and drawbacks of owning the equipment. The business’ balance sheet includes the liabilities and assets of the equipment. Capital leases typically include a $1 buyout at the end of the term. An operating lease differs from a capital lease in that it is not included in the business’ balance sheet. The lender/finance company owns the equipment so the lender/finance company takes advantage of any depreciation of the equipment. Operating leases are typically used for equipment that has a short shelf life or a piece of equipment the business plans on replacing at the end of the lease term.
Financing your equipment with an SBA backed loan is another good way to obtain crucial pieces of equipment. Lenders can offer flexible terms as well as lower rates since the loan is guaranteed by the SBA, a government entity. Loan terms for an SBA loan can last up to ten years as long as the equipment does not depreciate dramatically.
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