The Nuts and Bolts of Equipment Finance

No matter what business you’re in, equipment is likely one of your major capital expenses.

As such, acquisition of equipment warrants thoughtful planning and strategy. Whether it’s heavy equipment like cranes, construction equipment, barges and manufacturing lines, or IT hardware like servers and laptops, many capital equipment types are physical assets that require regular maintenance, periodic upgrades and eventual replacement.

The considerations for equipment purchases go far beyond the initial price tag, and timing is key. There’s often substantial lead time – if equipment isn’t available in current inventory – and the total life cycle of most equipment is measured in years, so planning for its end-of-life is as important as its first day on the job.

A trusted financial advisor with specialty expertise in equipment finance can help you assess your short- and long-term needs and maximize the return on your equipment investment. Choose someone with a long-term interest in helping your business flourish over someone who’s focused on closing individual deals.

A conversation with an expert equipment finance advisor may touch on the following:

  • An audit of existing equipment, its age, expected lifespan and rate of diminishing returns over time. Equipment typically becomes less efficient and more expensive to operate over time. Downtime due to regular or unscheduled maintenance often becomes more frequent. Auditing your existing equipment and looking at these trends is a first step in figuring out if newer equipment will generate the return on investment required to justify the purchase.

  • A review of pain points and objectives. An experienced equipment finance advisor will ask questions to uncover your challenges and goals to tailor a finance offering that addresses them.  Examples of important factors include:
    • Interest rate environment
    • The economy
    • Cost environment
    • Availability of labor
    • Desire to preserve working capital and liquidity
      • Financing equipment purchases can preserve bank lines of credit or cash on hand, providing capital for more short term or strategic purposes.
    • The need to Improve cash flow
      • Financing equipment eliminates the need for a large cash outlay upfront, aligning the timing of payments with future revenue generated by the equipment acquisition.
    • The need to comply with bank covenants
      • A tailored equipment finance solution can improve a company’s ability to comply with existing bank covenants.
  • Partnerships with other financial institutions to improve your opportunity for advantageous financing. An experienced equipment finance advisor can help you diversify your lending sources through partnerships with other banks. This comes in handy if one institution can’t finance your equipment, but they have relationships at other institutions that can.

  • The potential savings of leasing vs purchase. Depending on your company’s individual situation, you may be able to save money by leasing the equipment from a financial institution. In this scenario, the bank purchases the equipment that you choose from the vendor you prefer, leverages the tax benefit of depreciation and leases it to you at a lower rate than if your company financed the purchase.

  • Contingency plans for unexpected breakdowns. Let’s face it: Stuff breaks. Your advisor should help you with a plan for the “what ifs,” including stop-gap measures and financing an unexpected purchase, with any related progress payments if there’s a lengthy lead time.

  • A comparison to any available captive or subsidized finance programs you may be considering. An effective advisor who wants your business to succeed will tell you when someone else’s products are more beneficial. They’ll explain the pros and cons of each option to inform your decision.

Jason Fronheiser is a financial advisor on Pinnacle’s equipment finance team. He can be reached at or (615) 252-6976.

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