Machinery Financing

Written by James McNee
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Machinery financing is a major concern for many businesses. Most businesses cannot afford to pay cash when purchasing machinery, so they will choose between a lease and a loan. A lease allows businesses to rent machinery for a designated period of time. A loan allows businesses to purchase machinery and to pay for the equipment and interest charges with monthly payments.

Machinery Financing Options

If you have enough money to purchase machinery outright, you will typically spend less overall. However, leasing or obtaining loans are the only options for most businesses. Leasing is a desirable option for obtaining machinery because it offers flexible payment terms. Leasing advantages include lower payments than most conventional loans, utilization of operating capital instead of investment capital, the ability to try out machinery without buying it first, and liquidation options if you are near retirement.

There are two types of leases you can use for machinery financing and they are true leases and finance leases. True leases require a series of regular payments and give you the option to buy the machinery at market value after the lease period is over. Finance leases are conditional sales contracts and allow for variable final sale prices if you decide to buy the machinery after the lease period.

Obtaining a loan is a machinery financing option if you wish to own the machinery. Loans are desirable over leases, because they give you full ownership over the machinery and how it is used. Loans also allow you to build equity in the machinery, which is not possible with leases. With a loan, you will be able to make monthly payments on your machinery instead of paying in full when you make the purchase.

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