Financing Equipment

1. Is Equipment Finance for You?

Below are the main benefits that equipment finance can offer.

1.1 You can conserve cash.

• You can spread the payments over several years. Three to five years is normal, but it could be longer for heavy plant and machinery with a long working life.Financing should not last longer than the expected economic life of the equipment.
• You can tailor the timing of the payments to suit your expected cashflow.For example, you may be able to arrange an initial payment holiday (the overall payments may change slightly).
• You can keep the overall payments lower by going for an operating lease rather than a purchasing arrangement (see 2.2).The finance company takes the equipment back at the end of the period to sell it.
• You may be able to generate extra cash by selling and then leasing back assets you already own.

1.2 You can control your outgoings.

• You will normally be offered a fixed rate deal.You will know what your payments are going to be, right from the start (assuming no change in tax rates or allowances).
• Provided you honour the terms and conditions, the finance will be secure for the term of the agreement.The leasing company cannot bring the arrangement to a premature end. You may be able to end it early, although there will probably be a charge. Read the small print.

1.3 You need offer no extra security.

• The equipment itself is normally the only security on a finance agreement.
• If you borrowed from your bank to buy the equipment instead, you would normally have to provide extra security.

1.4 You can easily replace the equipment at the end of the agreement.

• With some financing arrangements you never own the asset, but have the use of it while the agreement lasts.
• If the equipment is likely to be worn out or obsolete by the end of the agreement, this arrangement could suit you.The finance company must get rid of the old equipment. You can move on to new equipment.
• You may be able to replace the asset before the end of the financing term, although there will be a cost.
• Check carefully if you are carrying forward any liability. It may pay you to settle in full (for example, if interest rates have risen).

1.5 If appropriate, you can arrange a service contract at the same time as the finance deal.

This could be a good option if the equipment needs continuous servicing support (eg a photocopier). If service is included, it must be shown on the agreement. If it is not shown, do not sign it.

• Take care before signing any service inclusive deal. There could be too much scope for confusion about the charges.
• You should be able to get a deal with payments directly related to use, and all service and maintenance elements (except accidental damage) included.
• Check whether - and to what extent - consumables are included.
• If you pay charges based on metered use, take readings before and after the engineer calls, and insist that test use is credited back to you.