Leasing, Installments, and Financing

An automated food machine is a significant expense, and many producers consider installments or financing. Below we explain the common options and what to compare. Terms differ from one financial institution to another; what follows is only a general explanation, not financial advice.

Can I Lease a Machine?

"Leasing" food machinery commonly means one of two things:

• Operating lease (short-term rental): You pay monthly rent and return the machine at the end of the term. This is more common with general-purpose equipment; for encrusting and forming machines that need to be adjusted to the product, short-term rental is less common and depends on whether the seller offers it.
• Finance lease: Essentially financing. A leasing company buys the machine you've chosen from the maker and leases it to you; you pay monthly rent, and at the end of the term you can usually acquire ownership at an agreed price.

There's also the "conditional sale": you pay in installments, ownership remains with the seller or finance company until you've paid in full, and then it transfers to you.

Can I Pay in Installments?

Installments can come from three sources:

1. Installments directly with the machine maker: Depends on whether the maker offers it, with terms agreed between the parties.
2. An equipment loan from a bank: Secured by company credit or the machine, subject to the bank's review. Small and medium-sized businesses can ask their bank whether there are programs combined with a credit guarantee.
3. Through a leasing company: a finance lease or conditional sale.

For the payment methods Dong-Yih Machinery works with, please call us directly (06-257-4644).

How Does a Finance Lease Work?

The general process:

1. You first agree on the model, specifications, and price with the machine maker.
2. You apply to a leasing company, which reviews your financial situation.
3. Once approved, the leasing company pays the machine maker, and the machine is delivered directly to your factory.
4. You pay rent monthly according to the contract.
5. At the end of the term, you acquire ownership according to the contract, or buy the machine at the agreed price.

The key point: the machine's quality, warranty, and repairs remain between you and the machine maker; the rent is between you and the leasing company. If the machine has problems, you usually still have to pay the rent, so acceptance must be done thoroughly. See Trial Runs and Acceptance.

What to Compare

Don't just look at "how much per month." Look at:

• Total amount paid: monthly amount × number of payments + down payment + fees + end-of-term purchase price, compared with paying in full.
• Effective interest rate: the cost after including all fees.
• When ownership transfers: This affects whether you can resell, pledge, or modify the machine.
• Early repayment: Can you pay it off early? Is there a penalty?
• Default terms: What happens if you pay late? Can the machine be repossessed?
• Insurance: Is insurance required, and who pays the premium?

Accounting and Tax

Finance leases, installment purchases, and operating leases are treated differently in accounting, affecting the balance sheet, depreciation, and expense recognition, and also whether you can claim investment tax credits. Please confirm this with your accountant. For how to calculate payback, see How to Calculate Payback, and include monthly rent or interest in "ongoing monthly costs."

When Each Fits

• Paying in full: You have ample funds and want to save on interest and fees.
• Installments or financing: You want to keep cash for working capital, ingredients, and marketing, or you expect the machine to deliver benefits quickly enough to cover the monthly payments.

Either way, the premise is that the machine really suits your product. Run a trial and confirm output first, then discuss payment.

FAQ

Q: Can I rent a machine to try it out first?
A: Encrusting and forming machines usually need to be adjusted to the product, so short-term rental is less common and depends on the seller. The more common approach is a trial run with your own ingredients.

Q: Does Dong-Yih offer installment payments?
A: For payment methods, please call Dong-Yih Machinery directly (06-257-4644).

Q: What's the difference between a finance lease and a loan?
A: With a loan you borrow money to buy the machine and own it; with a finance lease the leasing company buys the machine and leases it to you, and you acquire ownership at the end of the term according to the contract.

Q: If the machine breaks down, do I still have to make installment payments?
A: Financing contracts are usually separate from the machine warranty, so you generally still have to pay; agree on acceptance and warranty terms clearly up front.