Financing equipment is usually easier than financing anything else, because the lender has something to take back. That makes it available to businesses that would struggle to get a general loan — and it makes the terms worth reading carefully.
The common forms
Instalment sale. You use it, pay monthly, and own it at the end. The asset is on your books and you claim wear and tear; the interest is a cost.
Lease. You pay for use. Depending on the structure you may or may not own it at the end, and the accounting and tax treatment differ.
Rent-to-own. Marketed to smaller businesses, frequently expensive over the term, and worth calculating in total rather than judging by the monthly figure.
Supplier finance. Offered at the point of sale. Sometimes genuinely competitive, sometimes a way to avoid discussing price. Compare it against a bank rather than accepting it because it is in front of you.
Compare the total, not the instalment
The monthly figure is what is sold to you; the total repayable is what you pay. Two offers with similar instalments over different terms can differ substantially in total cost.
Ask for the total repayable, the interest rate, all fees, and any balloon payment. A balloon keeps the instalment low and leaves a large amount due at the end, which is a fine arrangement if you have planned for it and a serious problem if you have not noticed it.
What you are signing beyond the finance
- Personal surety. Common. It puts the debt beyond the company and onto you.
- Insurance requirements — usually mandatory, sometimes only through the financier at their price. Check whether you may insure it yourself.
- Early settlement. What it costs to pay it off sooner.
- Default. What happens if you miss a payment, and how quickly.
- Maintenance obligations, where the agreement imposes them.
Match the term to the useful life
Financing over five years something that will be worn out in three means paying for an asset you no longer have. The term should end at or before the point the equipment stops earning.
Make sure it pays for itself
Before signing, work out what the equipment will add — more output, lower cost, work you can now accept — and check it comfortably exceeds the instalment.
Equipment bought because it was available on finance, rather than because the work exists to justify it, is the most common way a small business acquires a fixed monthly cost it later cannot carry.
General guidance, not financial, credit or tax advice. Compare offers and take advice on terms before signing.