What Is Equipment Finance?

104 44

    Loan Terms

    • When lenders write loans secured by equipment, the amount financed cannot exceed the collateral value. If the borrower defaults on the loan, the lender can claim ownership of the collateral and sell it to recoup the outstanding debt. Generally, equipment becomes obsolete over the course of time, so loan terms cannot exceed the useful life of the financed equipment. In some instances, the state and federal governments insure lenders against losses associated with borrower default. Consequently, on government-backed loans the lenders are less strict on loan terms.

    Borrowers

    • Equipment loans are common in the medical field as hospitals and local practitioners use equipment financing to avoid paying for expensive equipment in one lump sum. Some lenders enable doctors and dentists to use one loan to finance a variety of different equipment. Borrowers with degrees in the medical field tend to have higher earning potential than people working in other fields, so lenders are more inclined to provide equipment loans to start-up medical professionals than people in other industries.

    Collateral

    • You can finance a variety of different types of equipment, but long-term loans are generally only available for heavy machinery. Loans for computers and telecommunications-related expenses are normally capped at two years because advances in technology mean these items become obsolete relatively quickly. In some states, the state government insures loans for businesses in certain industries to try and encourage job creation. A lender may approve a loan using a type of equipment in a state where the government insures loans but not finance the same equipment in a different state where the government does not insure such loans.

    Solar

    • The federal government and several state governments offer tax incentives to business owners and homeowners who install solar panels. The installation costs are significant, and in many instances people lack sufficient home equity to finance the installations. Therefore, lenders are encouraged to offer long-term, low interest rate equipment loans that people can use to purchase and pay for the installation of solar panels. Other types of loans tied to energy-efficient equipment are also available in some states.

Subscribe to our newsletter
Sign up here to get the latest news, updates and special offers delivered directly to your inbox.
You can unsubscribe at any time

Leave A Reply

Your email address will not be published.