Every small business and startup has audacious plans for scaling and expanding its reach and reputation.
But in order to achieve these goals, these firms would also need to also scale up their production capacity—which often entails purchasing expensive equipment.
You could go the traditional route and purchase the equipment with cash. Bank loans may also work, but it’s never a guarantee that your loan will be approved or be enough to cover your equipment needs.
If you’re looking for the next best thing, consider equipment refinancing.
Equipment refinancing is a credit facility that allows you to purchase new or used equipment from a third party and use that as a means to scale your business.
In case you default on your payments, these lenders won’t come after your personal assets. Rather, they take back what’s rightfully theirs—the equipment.
Here are some benefits of equipment financing that may just persuade you to get on board.
With each new year bringing a new innovative gadget to the market, it’s only a matter of time before your shiny new equipment becomes obsolete and outdated.
Not only will your equipment become outdated, but its standalone value can also rapidly depreciate. This is especially true for computer hardware and other electronic devices. Even if you don’t plan on upgrading your hardware anytime soon, it’s still a good idea to factor in the depreciation value when making your purchase.
If you want to protect yourself from liquidity and depreciating value, then equipment financing is the way to go. This way, you don’t have to cover the entire purchase price upfront. Instead, you can finance the equipment over time and only pay for what you use. And when it comes time to upgrade, you can simply return the equipment and find a provider who can finance a brand new model.
When you finance your equipment, you free up working capital that would have otherwise been used to purchase the equipment outright.
With this extra leeway, you get more time to generate revenue and kickstart your small business without needing to worry about having to spend lots of money on equipment.
Simply put, financing your equipment allows you to keep more cash on hand for other important business expenses.
While equipment is one of the main reasons why businesses seek out loans and financing, it’s not the only method.
In order to get approved for loans, you’ll need to have a strong business credit score—and one way to build credit is by financing your equipment.
When you make on-time payments, it reflects well on your business credit report, which in turn can help you get approved for other types of financing in the future.
This improved credit score can come in handy when you need to apply for business loans, lines of credit, and future leases.
When you finance your equipment, you may be able to enjoy certain tax breaks and deductions.
Companies can deduct depreciation and interest paid from repayments by undergoing this financing model, which can play a role in improving taxable income.
The good news is that tax benefits are claimable no matter what type of financing structure you choose. This means that financing models like chattel mortgages, equipment rental, asset leasing, and cashflow funding can all help you enjoy certain tax benefits.
One of the biggest benefits of equipment financing is that it can be tailored to your business’s needs.
For example, some businesses may want to enjoy lower monthly payments by opting for a longer repayment period. Others, on the other hand, may want to keep their monthly payments low and make a larger balloon payment at the end of the loan term.
Some businesses may even want to take advantage of the opportunity to buy their equipment outright at the end of the financing term, should their financial situation allow it.
No matter what your business goals are, there’s an equipment financing solution that can be tailored to suit your needs. This gives it an edge over other types of financing, such as business loans, which usually have inflexible terms and conditions.
If your business’s current operation is being held back by a lack of equipment, then equipment financing can help you get the ball rolling immediately.
With this type of financing, you don’t have to wait until you have the funds to purchase equipment upfront – you can begin productive work as soon as a financing lender allows it. Some lenders won’t even need you to pay for a downpayment immediately.
If your business is in dire need of immediate equipment, then equipment financing can help you engage in commerce much faster than other types of financing.