What Is an Equipment Finance Agreement?

An equipment finance agreement is an alternative to traditional lease operating agreements. Such arrangements generally are more flexible than leases. At the end of the equipment finance agreement, you have no further obligation to the financier. "The EFA," explains Pacifica Capital, "is in actuality a loan to the customer," with the equipment serving as collateral.

Features

An equipment finance agreement allows you to legally retain ownership of the equipment.

Significance

The agreement is a way to finance equipment needed for your business without a large initial out-of-pocket expense.

How an EFA Differs From a Lease

In a lease financing agreement, the lessor retains the right of ownership. EFAs and leases are similar in most other ways.

No Purchase Option Price

Equipment finance agreements don't have a final purchase option price. This feature will help you avoid disputes that often occur at the end of lease agreements.

Down Payments are Generally Smaller

Typical down payment requirements are set at 20 percent of the purchase price.