Fixed equipment occupies a unique space in the equipment financing discussion. These assets must be installed and become part of the structure of a building or facility. However, they are still considered assets, not real estate. This means that they may be eligible for funding in the same way as trucks, machinery, or other movable assets.
Determining what is fixed equipment and what is real estate may be challenging at first, but in basic terms, fixed equipment cannot be a critical component of the integrity of the structure. For example, a business may be able to finance an HVAC system or a processing line in a new facility, but the roof is considered real estate and its cost would be included in the building’s mortgage. While the HVAC system or processing line are important to the business and its facility, the structure would still be functional without it. Without a roof, however, the building becomes compromised.
The distinction between real estate and fixed equipment also changes the term of financing. A building may have a 30-year mortgage, but the financing term for the fixed equipment inside the building may only last for 5-7 years. This is because the financing term is based on what is defined as the useful life of the asset, even if the asset may last longer with proper care and maintenance. Depending on the type of financing, the business may choose to keep the asset or to upgrade and replace it with a newer model at the end of the term.
Businesses can tap into additional sources of funding and diversify their capital partners with financing for their fixed equipment. By working with a bank for the mortgage on the facility and with a separate financial partner to finance the assets within the facility, the business can spread their CapEx costs among several financial companies and avoid depleting any one line of credit.
If you are looking to finance new fixed equipment, DLL may be able to help. We support asset needs across brands, along with associated soft costs—greatly simplifying the process and management of your capital assets. Give our direct asset finance team a call today to start the conversation.
