Disclaimer: Information in the Business Financing Blog is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the Business Financing Blog often covers financial products that Biz2Credit does not currently offer.
As a small business owner, when equipment breaks down or needs to be replaced, it can be hard to find the necessary cash. Often, companies resort to purchasing used and outdated equipment that is costly to maintain and repair, simply because they can’t afford the upfront costs of new equipment and are hesitant or uninformed about available financing.
If you find yourself in a similar situation, equipment financing might be the right solution. By financing the purchase of equipment, you can access needed tools and technology without dipping into your emergency savings.
This article explores the numerous benefits of equipment financing, from preserving cash flow to accessing the latest technology, and provides practical advice on leveraging these advantages.
3 Key Takeaways
- Equipment financing is a smart way to free up free cash flow
- Equipment financing can help you maintain steady costs over time
- Equipment financing can be a smart alternative to leasing or purchasing equipment outright
Preserving Working Capital
Equipment financing allows businesses to acquire tools and technology without using up cash reserves. This is achieved by spreading the cost of equipment throughout its useful life, which frees up working capital that can be used elsewhere within the organization.
For example, the money you would have paid for your equipment up front can be used for marketing, payroll, emergency repairs, or to take advantage of new growth opportunities.
It’s easy to see the strategic value of financing equipment when viewed this way—it allows you to maintain a competitive edge while managing your company’s financial health.
Access to the Latest Technology
Staying competitive often requires access to the latest technology, which is typically much more expensive than purchasing used equipment. By financing your equipment, you can acquire advanced tools and machinery without the need for a large lump sum investment.
Budgeting and Cash Flow Management
Equipment financing offers fixed monthly payments, which simplifies budgeting and financial planning. While you may still have surprise expenses in other areas of your business, you’ll know exactly how much will be spent each month on your equipment, allowing you to allocate your resources more effectively without having to worry about sudden financial strains.
Tax Advantages
Equipment financing can also come with another benefit—tax advantages. Under the current federal tax code, businesses can often deduct the full cost of financed equipment.
Section 179 allows businesses to expense the cost of eligible equipment purchases immediately rather than depreciating them over time. Additionally, interest paid on equipment loans may be tax-deductible. Together, these tax benefits can significantly reduce the overall cost of new equipment.
Avoiding Obsolescence
In rapidly changing sectors, machinery can become outdated very fast. Equipment financing helps companies to circumvent this problem by giving them an opportunity to upgrade or buy new equipment at the end of their financing term. The flexibility enables small businesses to always have access to the latest and most efficient equipment, keeping them at the cutting edge of their industries. New equipment can also help save money over the long run by reducing repair and replacement costs.
Fewer repairs and upgraded equipment also typically means less downtime and greater productivity and efficiency—all factors that should be considered when evaluating whether or not to finance new equipment or opt for repairing or purchasing used equipment.
Flexible Payment Options
Lenders offer a number of different payment options with equipment financing that can be adjusted to coincide with the cash flow patterns of your business. For example, you may be able to take advantage of seasonal payment plans, different term lengths or even deferred payment options that align with your financial capabilities. This flexibility makes it easier for companies to balance equipment purchases with their overall financial strategy. Plus, it may allow you to make extra payments during the high season to pay down the debt more aggressively.
The Impact of Equipment Financing on Business Credit
Equipment financing can improve your business credit. When you make on-time payments on your equipment loans, you demonstrate reliability to credit agencies, which will reflect positively on your credit score.
A strong credit profile can help you access additional financing opportunities in the future, supporting additional business growth and expansion. A good credit score can also help you negotiate better terms on future loans, leading to lower interest rates and increased flexibility.
Speed and Efficiency in Procurement
When your company needs new equipment, time is often of the essence, and delays can disrupt operations and impact productivity.
Equipment financing allows you to quickly access the necessary funds to make purchases without waiting months to save up. Many lenders offer streamlined application processes specifically designed for equipment financing, so that once you’re approved, the funds may be available in just a few days. This quick turnaround allows businesses to act fast, securing the equipment they need to maintain or enhance their operations without missing a beat.
Moreover, the efficiency of this financing option reduces the administrative burden on business owners. Instead of dealing with multiple vendors and payment plans, the financing arrangement typically consolidates these into a single, manageable monthly payment. This not only simplifies budgeting but also frees up valuable time for business owners to focus on growth and other strategic priorities.
Alternative to Outright Purchase
When making the choice between financing, leasing, or purchasing equipment outright, business owners should consider both their needs and their present financial situation. Equipment financing offers the benefits of ownership without the large upfront cost. Leasing, on the other hand, might offer lower monthly payments but at the end of the term, you don’t own anything. Understanding the pros and cons of each allows you to make the best decision for your situation.
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Conclusion
Equipment financing offers several benefits for small business, ranging from preserving cash flow to providing access to the latest, most modern technology and equipment. Because financing allows you to spread the cost of equipment over time, you can maintain liquidity in your business, manage your finances more efficiently, and overall increase your competitiveness. For more information about financing available from Biz2Credit, click here.
FAQ Questions
Most types of business equipment can be financed through equipment financing programs, including machinery, vehicles, technology, and even office furniture.
To take advantage of equipment financing, you will typically need a good credit score, a solid business plan, proof of income, and sometimes, collateral, depending on the lender.
Financing allows for ownership of the equipment at the end of the term, while leasing typically offers lower monthly payments without ownership. As a result, with financing, you have the option of selling the equipment down the road to recover some of your costs.
Yes. On time payments will help build and improve your credit score, however, if you fall behind on payments, it will negatively impact your score.
Industries with expensive and specialized equipment often benefit the most from equipment financing. For example, manufacturing, construction, healthcare, and technology.
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