When it comes to applying for a loan, most businesses will go for the traditional option and approach banks without giving much thought to the types of lenders that specialise in providing equipment finance services. Although similar in nature (with one party providing money and the other receiving it, before paying back what’s owed over time), the fact is that both options are different, so choosing the right one can make a lot of difference to the way in which a company is able to benefit.
Here’s a closer look at the key differences between the two options.
Annual percentage rates, or APR as the term is commonly abbreviated, are a form of interest that is applied on top of monthly repayments. Where mortgages rely on regular interest rates, regular loans use APR to calculate what a borrower can expect to repay. Finance agreements differ in the sense that they use monthly rates, as opposed to APR.
The former can be far more beneficial to a company, as it will be possible to compare these terms with other lenders and choose the cheapest one. For smaller repayments (those of a lesser duration), the lower rates can help a company to save anywhere between a few hundred dollars and several thousand a year.
Traditional loans typically have one thing in common, and that’s what they will often have a set of policies that they will adhere to. Although some loan officers will be willing to modify their terms to suit particular circumstances, in the majority of instances a borrower will be expected to adhere to the policies, exactly as they are dictated by the bank.
Adversely, finance agreements can be tailored almost from the ground up; especially when using a financial expert to help with the negotiation of terms and conditions. Most lenders will be willing to treat every application in a unique manner and this can make it especially beneficial when a business wants to borrow a specific amount, repay a certain quantity by a particular time, or undertake any other individualistic policies.
One of the biggest drawbacks of regular loan services is that they often feature fixed repayment schedules. If a borrower can’t meet them, then they will have to prepare for action on behalf of the lending agency. As you can imagine, this really wouldn’t be a comfortable position to find yourself in. Although some lending agencies might be willing to stretch their expectations slightly, the majority will be very firm in their demands.
On the other hand, those that specialise in financial services will typically be far more lenient and willing to extend their schedules and deadlines to benefit the borrower. It’s not unheard of for payments to be made over the course of a decade; sometimes even longer. In fact, as many lenders extend hundreds of thousands of dollars to businesses that need to purchase large machinery or expensive vehicles – it’s only logical that these types of services will tailor their terms to better suit lengthier repayment times.
When choosing the right type of service for your needs, be sure to weigh up all of your options. Hiring an advisor can go a long way and we’d certainly recommend doing so before agreeing to any terms dictated by a lender.