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Business equipment finance

Lease finance of Equipment: Perspective on Utilization.

The decision about the type of financing required for new equipment may need some assistance from your accountant. Your accountant will have to perform a bit complicated financial analysis of the tax status of your business equipment finance together with cash flow status and internal rate of return. You can also achieve this on your own by means of some of the tools available online. The key issue in determining financial alternatives is the utilization rate of the equipment.

Should utilization of the machine be expected to be for more than seventy five percent of the time and it is also proposed that the machine be used for an extended period of time, then a conventional loan might be the right choice for you provided that it works in unison with your tax situation, bonding capacity and cash flow projections. But a loan is undoubtedly not the right choice if you plan to use the machine for only three or four years and then scrap it.

If equipment utilization is anticipated to be between sixty to seventy five percent then alternatives such as rental or leasing should be considered. This is ostensibly true for specialty equipment that is normally used for a few working days per week. In fact we would like to emphasize one thing, that if utilization is exceptionally high then it makes sense obtain equipment on lease finance basis, however, the decision would rest mainly upon the business equipment finance position of the small business.

For equipment that operates at no more than fifty percent capacity, utilization rental is the best way to obtain the equipment. Rental is also a good selection if the machine is to be used for very short durations continuously, say for instance that in a one year period you require to operate a certain machine for only three months of that period, and then a rental option will serve your purpose.

Sources for lease financing:

A fast moving trend that manufacturers of equipment are offering, in order to encourage the purchase of their equipment, is in-house business equipment finance and leasing. This is branded as captive financing. The manufacturer arranges for the equipment to be financed by and large through their chosen dealers.

The benefit of this system for the manufacturer, apart from increased sales, is that good relations with dealers and with the remarketing network, acquires for them a superior resale price. More often than not a dealer would be willing to repurchase the equipment from the manufacturer and accordingly the manufacturer is then able to pass on the savings benefit to the customer in the form of a lower monthly repayment.

The OEM based program allows a small business to enjoy a consistent rate throughout the nation; this is especially so, for companies that are operating in more than one state. With these programs a small business is able to take advantage of the same rate from a manufacturer irrespective of location. In general you may find that independent finance companies that are not associated with any manufacturer are more positively disposed toward the option of exchange of lease finance to loan and providing lease finance for second-hand equipment.

Qualifying for a lease finance:

For any form of dealings with a bank or financial institution, a well presented case will always produce good results. Herewith is a short list of documents and information that you must always have with you for any meeting at one of these institutions.

* Referral identity if any.

* Social security number.

* Banking information.

* Trade references.

* Credit information page of the company.

A small business that has been in function for less than three years may also be required to thrash out their experience and offer additional references such as a business sketch.

One vital aspect to be remembered is that even if you have a poor credit record, this must

be acknowledged and no effort made to conceal it. Routinely lease finance is granted based on the eagerness of a person to pay back the money in question and may not be dependent upon any further financial information. However this is true only for ostensible amounts, with larger amounts a financial statement of accounting is a must.

A good amount of preparation is necessary before you proceed to a meeting with the bank or financial institution and you must be well able to explain the motivation subsequent to your application for a lease finance or loan. The more convincing your explanations, the easier it will be to obtain finance for the equipment.

A startup business or a small business will need to have a valuable business plan in place to convince the financer of the need for the loan. The business equipment finance plan must include everything about what you plan to do, how you resolve do it and at what time you are going to undertake this.

Deciding which leasing company to use:

The most important concern about the choice of a finance company should be its reputation for stability and commitment within the industry. By this we mean that if a particular manufacturing industry has declined in the past, the finance company should have been able to maintain balanced relations throughout that industry. A good finance company will support a particular industry during good times as well as the bad.

The second most significant consideration should be the magnitude of the finance company. This would entail your understanding of their ability to grow into the future, in order that the finance company can continue to finance your projects, together with you as your small business continues to grow over the years.

Where lease finance is the means of finance, the finance company*s know-how and familiarity is exceedingly significant, unless the finance company has a broad range of experience accompanied by reliable information regarding the equipment you require, you should not proceed any further with that particular finance company.

Lastly, the finance company should have a sound character and this can be found out from online sources, existing clients and the rivals of the finance company. The status of the company addresses the integrity and fair dealing that it offers, together with timely financial and non-financial services as per the requirements of the small business.

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