Understanding Equipment Financing Terms Before You Sign
Equipment financing agreements are full of language that sounds similar but changes the deal in meaningful ways. A five-year term with a $1 buyout is a very different commitment than a five-year term with a 10% residual, even though both might be quoted as "5-year financing" by a salesperson trying to close quickly. Knowing what the terms actually mean before signing can save a business thousands of dollars and a lot of frustration down the road. The basics start with term length — how many months or years the payments are spread across — and the payment structure, which is usually fixed but can occasionally be seasonal or step-up to match a business's cash flow. Beyond that, the details that actually shape the cost of the deal are the interest rate (or the implicit rate baked into the payment if it's structured as a lease), the buyout or residual value at the end of the term, and any fees for documentation, early payout, or asset transfer. Getting familiar with...