Equipment Financing 101 for Industrial Projects
Loan, lease, hire-purchase or vendor financing — a plain-language map of the main options and when each one fits.
Industrial equipment can be paid for in cash, but it rarely should be. Structuring finance around the asset lets you preserve working capital and align payments with the revenue the equipment produces.
Equipment loan — the buyer owns the asset from day one; the lender takes security over it. Best when tax depreciation is valuable and residual value is meaningful.
Finance lease — economic ownership sits with the lessee, legal ownership with the lessor. Similar economics to a loan, different accounting treatment.
Operating lease — closer to a rental; the lessor keeps residual value risk. Fits fast-obsolescence equipment.
Vendor financing — the equipment supplier offers or arranges the finance. Convenient but the effective rate is often bundled into the price.
Working capital line — for the cash gap between paying suppliers and being paid by customers, not for the asset itself.
Every one of these can be layered with export credit or buyer credit when the supplier is in another country — see the companion guide.
Frequently asked
Not once tax, cashflow and residual value are modeled. A short-tenor loan can beat a lease on nominal cost and still be the wrong choice if it starves the operating business of cash.