Every business requires some equipment to enable it to run its operations smoothly. When acquiring equipment, business owners may decide to purchase or lease. Purchasing grants businesses ownership of equipment, but the problem is that it takes a substantial amount of money, which a business may not have at any one time.
Direct financing is one of the best ways for businesses in that it gives them access to equipment utilization through a leasing arrangement. From the outlook, this financing option doesn’t strain businesses as much, and yet it gives them the benefit of generating income through the usage of the leased equipment.
Direct Financing and How It Works
Also known as a direct lease, direct financing refers to a type of lease which is non-leveraged. The entity leasing the equipment is neither a manufacturer nor a dealer of the equipment, and the underlying intention is that the entity leasing it will purchase it at the end of the lease agreement.
Once the lease is complete, the business owns the equipment and enjoys the full rights to continue leasing it to whoever person or company they wish. This mode of equipment financing is suitable for you if you are in the business of leasing equipment or contracting on a regular basis to third parties, but you have limited funds to purchase the equipment from the manufacturers or owners.
The leasing agent may require some assurance from you concerning your payments to him, but in the end, all parties involved benefit. On the minimum, the leasing agent will expect that you will, without fail, submit regular payments irrespective of how your contract with your third party goes.
How Direct Financing is Revolutionary
Direct financing has changed the face of equipment ownership among businesses. There are several ways this has happened, amongst them:
Businesses Get the Right Equipment
If you do not have finances for a brand-new equipment purchase, chances are you may contemplate purchasing second-hand equipment. This is a temporary fix and will be expensive in the long run because of the failures and need for frequent repairs. Also, such unpredictable machines may dent your productivity level. Direct financing through established companies such as BSB Leasing gives you access to a wide range of funding options to purchase the exact machine you require.
As opposed to a bank loan or financing from intermediaries, direct financing is an agreement that is not classified as debt in your balance sheet. Instead, the periodic lease payments are classed as ongoing expenses in the profit and loss account. This ensures that your balance sheet remains clean and you do not have a burden that dents your financial picture. Such lease arrangements are known as off-balance sheet financing. For businesses in the contracting sector, you can actually be generating income that in turn finances your lease payments and leaves money for profit.
Higher Chances of Approval
For the traditional loan arrangements, you will be expected to meet certain conditions and strict criteria. In direct financing, this is not the case because the leasing company uses real people to evaluate your credit application and come up with a solution that works for both of you.
If you have always wanted to own that piece of equipment, but for some reason, your cash flow doesn’t allow it, direct financing is the way forward!