Equipment financing: loans, leases and the payment math

In equipment financing the thing being bought secures the deal. If the business stops paying, the lender can take the machine, truck or oven back. That collateral lets equipment lenders approve files that would struggle for unsecured credit, and price them below an advance. It also means the lender cares about the asset: what it is, how long it lasts and what it would sell for used.

Tax and accounting treatment differs between these structures. Tell merchants to ask their accountant which suits them; do not promise a tax result.

• Down payment: strong files may finance the full price; newer businesses or weaker credit are often asked for 10% to 20% down, or the first and last payments up front.
• Soft costs: delivery, installation, training and software. Lenders limit how much of the deal can be things they cannot repossess.
• Used and private-party equipment: possible, but lenders want an inspection or valuation and may shorten the term.
• Vendor relationships: dealers who sell equipment need financing to close sales. A broker who gets fast approvals becomes the dealer's go-to, and the dealer sends a steady flow of buyers. Treat dealers as referral partners and pay them only as your agreements and the law allow.

A commercial bakery buys a $80,000 deck oven, puts 10% down ($8,000) and finances $72,000 over 60 months at 9% a year.

payment = P x r / (1 - (1 + r)^-n)
P = 72,000   r = 0.09 / 12 = 0.0075   n = 60
(1.0075)^60 = 1.5657, so (1.0075)^-60 = 0.6387
payment = 72,000 x 0.0075 / (1 - 0.6387) = 540 / 0.3613 = $1,494.60 a month
total paid = 1,494.60 x 60 = $89,676; interest = 89,676 - 72,000 = $17,676

Check it a second way: 60 payments of $1,494.60 cover the $72,000 principal plus interest that starts at $540 in month one (72,000 x 0.0075) and shrinks as the balance falls, so total interest well under 60 x $540 = $32,400 makes sense. Our free business loan payment calculator gives the same $1,494.60.

Leases are often quoted as a rate factor instead: the monthly payment per dollar financed. Here, 1,494.60 / 72,000 = 0.0208. Multiply any amount by the factor to get its payment, and ask the lessor for the rate it implies before comparing with a loan.

Set the deal's Product to Equipment finance in Ferrylend. Its Application tab has an Equipment section for the description, new or used, year, make and model, serial, cost, down payment and vendor, and Use the Equipment finance checklist asks for the vendor invoice or quote. Offers can be a loan (rate, term, down payment, balloon) or a lease (lease rate factor and residual or buyout), and the calculator shows the payment, total cost and an APR estimate for either. Dealers who refer buyers can be tracked as a lead source. See CRM for equipment finance brokers.