What are the Best Equipment Financing Options
Equipment Finance Agreement
An Equipment Finance Agreement (EFA) is a legal contract between a lender and a borrower in which the lender agrees to provide the borrower with financing to purchase equipment, and the borrower agrees to repay the loan over a period of time.
The equipment being financed becomes the collateral for the loan, and if the borrower defaults on the loan, the lender has the right to repossess the equipment.
EFAs are typically used by businesses that need to purchase equipment, such as vehicles, machinery, or computer systems, but do not have the cash on hand to do so. They are also known as equipment lease agreements or capital leases.
Equipment Lease
An equipment lease is a legal contract between a lessor (the lender) and a lessee (the borrower) in which the lessor agrees to provide the lessee with the use of equipment for a specified period of time, and the lessee agrees to pay a periodic rental fee for that use. There are several types of equipment leases, including:
- Operating Lease: The lessee makes rental payments, but does not purchase the equipment. The lessor remains the owner of the equipment.
- Capital Lease: Also known as a “finance lease”, the lessee makes rental payments, with an option to purchase the equipment at the end of the lease term.
- Fair Market Value Lease (FMV): The lessee has the option to purchase the equipment at the end of the lease term for a pre-determined price, known as the fair market value.
In an equipment lease, the lessor is typically responsible for maintaining and repairing the equipment, while the lessee is responsible for insuring the equipment.
At the end of the lease term, the lessee may have the option to purchase the equipment, return the equipment to the lessor, or renew the lease for another term.
Equipment leases are often used by businesses that need to use equipment but do not have the cash on hand to purchase it outright. They can also be used to upgrade or replace existing equipment to improve productivity or efficiency
Fair Market Value Lease (FMV)
A fair market value (FMV) lease is a type of equipment lease agreement in which the lessee (the borrower) has the option to purchase the equipment at the end of the lease term for a pre-determined price, known as the fair market value.
The fair market value is typically based on the equipment’s value at the end of the lease term and is determined by a third-party appraiser. In an FMV lease, the lessee is responsible for paying the costs of maintaining and repairing the equipment during the lease term.
The lessor (the lender) is responsible for paying any taxes associated with the equipment. At the end of the lease term, the lessee has the option to purchase the equipment for its fair market value, return the equipment to the lessor, or renew the lease for another term.
FMV leases are often used for equipment that has a high value, such as aircraft, and for equipment that may become obsolete quickly, such as computer systems. They are also known as a “dollar buyout lease” or “terminal rental adjustment clause (TRAC) lease”.
An equipment loan is a type of loan that is used to finance the purchase of equipment, such as machinery, vehicles, or computer systems. The equipment itself serves as collateral for the loan, and the lender may have the right to repossess the equipment if the borrower defaults on the loan.
Equipment Loan
Equipment loans are typically offered by banks and other financial institutions, and the terms of the loan may vary depending on the lender. The loan may be secured or unsecured, and the interest rate and repayment period may be fixed or variable.
The loan may also require a down payment, and the borrower may be required to provide financial statements and other documentation to qualify. Equipment loans can be useful for businesses that need to purchase equipment but do not have the cash on hand to do so.
They can also be used by businesses to upgrade or replace existing equipment to improve productivity or efficiency.
Trac Lease
A TRAC lease, which stands for “Terminal Rental Adjustment Clause” lease, is a type of equipment lease that is similar to a fair market value (FMV) lease.
It allows the lessee (the borrower) to use the equipment for a specified period of time, and at the end of the lease term, the lessee has the option to purchase the equipment for its fair market value, return the equipment to the lessor (the lender), or renew the lease for another term.
In a TRAC lease, the lessee is responsible for paying the costs of maintaining and repairing the equipment during the lease term, as well as any taxes associated with the equipment. The lessor is responsible for determining the fair market value of the equipment at the end of the lease term, which is typically based on an independent third-party appraisal.
TRAC leases are often used for equipment that has a high value or that may become obsolete quickly, such as commercial trucks, trailers, and construction equipment. They allow businesses to use the equipment without having to purchase it outright and also provides flexibility at the end of the lease term.
The Bottom Line
As you can see there are many equipment financing programs ranging from several lease options to bank loans. Whether you’re a small business owner or have a large fleet, we have options for a wide range of credit scores. We also offer great rates and terms.
Get a risk-free no-obligation equipment financing quote today. Get pre-approved for up to $250,000 today!