Answering Your Equipment Financing FAQs

If you're looking for a business loan to finance new equipment purchases, you may be wondering if equipment financing is the right option for you. Here are answers to some common questions about this type of financing:

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1. What is equipment financing?

Equipment financing is a type of business loan that can be used to finance the purchase of new or used equipment. This can include everything from office furniture and computers to manufacturing machinery and vehicles.

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2. How does equipment financing work?

With equipment financing, the lender provides the funds necessary to purchase the equipment and the borrower agrees to repay the loan over time, usually in monthly installments. The repayment period can vary depending on the lender, but it's typically between two and seven years.

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3. What are the benefits of equipment financing?

There are several benefits to using equipment financing to purchase new equipment for your business, including:

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• Preserving working capital: Since you're not using your own funds to finance the equipment purchase, you can keep your working capital available for other purposes.
• Affording more expensive items: Equipment financing can help you afford more expensive items that you might not be able to purchase outright with cash.
• Tax advantages: In some cases, the interest paid on an equipment loan may be tax deductible.

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4. Are there any drawbacks to equipment financing?

One potential drawback of equipment financing is that if you default on the loan, the lender can repossess the equipment. This could leave your business without the necessary equipment to operate.

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Another thing to keep in mind is that, like any other loan, equipment financing will require you to make monthly loan payments, which could impact your cash flow.

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5. How do I qualify for equipment financing?

To qualify for equipment financing, you'll need to have a strong credit history and a solid business plan. The lender will also want to see that you have the ability to repay the loan.

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If you're thinking about applying for equipment financing, be sure to shop around and compare offers from multiple lenders to get the best deal. And remember, always read the fine print before signing any loan agreement.

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6. Why Do I Have to Pay Sales Tax for Some Leases but Not Others?

The IRS considers some leases to be "true leases" while others are considered "conditional sales contracts." The difference between the two has to do with who ultimately owns the equipment at the end of the lease term.

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With a true lease, the ownership of the equipment remains with the leasing company. At the end of the lease term, you can either return the equipment or purchase it for its fair market value.

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With a conditional sales contract, on the other hand, ownership of the equipment transfers to you at the end of the lease term. This means that you'll be responsible for paying any applicable sales tax when you purchase the equipment.

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Do you have any other questions about equipment financing? Let us know in the comments below.

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National Legacy Capital Group specializes in working capital loans, business lines of credit and equipment finance. We're here to help your business grow and succeed. Contact us today to learn more about our financing options.