Material handling equipment financing is a type of loan designed for businesses to help them purchase large equipment. This includes things such as agricultural equipment, molders, commercial refrigerators, trailers, trucks, car wash equipment, large format printers, chillers, generators, machine shop tooling, automated machinery, commercial ovens, and so on. This type of equipment is incredibly expensive, which is why financing is usually required.
Deciding Which Material Handling Equipment Financing Options Are Needed
If you want to have any large equipment financed, there are a number of things that you have to consider. Firstly, this type of loan allows you to buy the equipment, paying it off over time. The collateral used by the lender is the equipment itself. This means that if you don’t pay, they will come and take it away. It is, therefore, the best option for equipment that is likely to last for many years, and that won’t become obsolete very rapidly.
Once the equipment is paid off, after all, it will continue to have value if you can continue to use it. You shouldn’t, therefore, finance equipment such as computers or anything classed as high tech. This is due to the fact that these types of machines are updated regularly, and it only takes around a year or two for them to be completely obsolete. In fact, it is rare for IT equipment to still be relevant in any way once it is paid off. This means that you will be left with something of no value, either to yourself or on the resale market.
Advantages of Financing
Low tech equipment and large agricultural and industrial equipment are good examples of machines that should be financed, as they will still be relevant after numerous years. In fact, this type of equipment is likely to never become obsolete, meaning that you won’t have to replace it as soon as, or even before, you have paid it off.
The key advantage is that, once you have paid your loan off, the equipment will be yours to keep. This means that, from one day to the next, you will have a far greater disposable income each month. Plus, presuming the equipment is still in working order, your profit margins will also increase because you can continue to be efficient. Furthermore, there are significant tax advantages to taking out finance on equipment. This is because financed equipment depreciates, and this depreciation can be deducted from your taxable income. Additionally, the interest you pay on your loan can also be deducted from your income taxes.
Disadvantages of Financing
There is a disadvantage to financing your equipment. The biggest one is that, although your expenditure will drop once it is paid off, you have to make quite high monthly payments. Furthermore, you usually have to make a down payment, which is generally quite high. So much so, in fact, that if you are a startup business, you may struggle to afford it, meaning you have to borrow even more.