Fixed rate or floating rate equipment financing? That's the question posed to me by the business strategy advisor to a transportation company.The trucking equipment being acquired is brand new and according to the borrower, has a useful life of 6 to 7 years. The equipment financing options include a 6 year, fixed rate loan from a major commercial finance company or a 7 or 10 year, floating rate loan from a commercial bank through the SBA 7a loan program. The initial interest rate on the SBA loan options is marginally lower than that of the fixed rate equipment financing.
As the financing options are not mutually exclusive, I've recommended that the borrower accept both the fixed rate and floating rate financing offers.
In my opinion, interest rates are more likely to increase than to decrease over the next 5 years. The company can minimize a portion of its future interest rate risk by locking in the rate on a portion of its financing requirements today.
What course of action would you recommend?
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Tags : Equipment leasing , leasing , equipment finance , SBA loan , SBA 7a , fixed rate financing
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