There’s some point in your business’s life cycle when you may need to invest in pricey equipment to ensure that it’s competitive. Yet, few small businesses have the cash flow to pay for such big-ticket needs out of pocket. Equipment financing is designed to make those large but necessary purchases more financially feasible for small businesses.
Here’s what you need to know:
What is Equipment Financing?
Equipment financing is a form of business financing used to provide companies with the capital necessary to purchase needed equipment. The process provides you with the funds necessary to secure the purchase of needed capital equipment for your business. The equipment purchased acts as security or collateral for the loan, meaning that as long as the loan is repaid promptly, you have continued use and access to the equipment. If a default should occur for any reason, the equipment will be used to secure the balance of the outstanding loan amount plus any additional costs.
How Equipment Financing helps
There are plenty of businesses that are not able to meet consumer demand if a particular type of business financing is unavailable. This is the reason why Equipment financing is made available to business that requires capital for new machinery and other tools that help them produce their products.
Let’s have a look at some points that how equipment financing helps, even for the small business to grow:
Improve Cash Flow
Our company only has so much cash-on-hand to spend on overhead, new opportunities, unexpected expenses, and other costs. Equipment financing can help you keep as much cash as in-house as possible. There is no point in dedicating a significant portion of your money to equipment upgrades or purchases when financing is available. You will enjoy the benefits of having accessible cash flow and increased clarity in budgeting once you obtain equipment financing.
Equipment financing amounts, rates, and terms vary by provider, but Lender is committed to supporting the needs of all small businesses — including startups that have been in business at least 12 months and small shops. Our loan terms may be as short as four months, and rates as low as 1.25 percent. Repayment occurs daily (or in some cases, weekly) in small amounts, based on settled credit and debit card sales.
Hedge Against Inflation
Equipment financing really does help your business hedge against inflation risk. Consider the ramifications of placing a large down payment on equipment or paying for the total cost all at once. It ties up your free cash and also makes little financial sense in terms of inflation. With the help of Equipment financing, you are allowed to make a series of payments over time and the lender will be the one who absorbs the devaluation of these payments over the course of the financing term due to the inevitable inflation.
Financial support for all phases of your business
Not only might your sales cycle fluctuate monthly or seasonally, but you may also have monthly financial obligations that require liquidity — regardless of your sales performance. Lender equipment financing allows you to purchase the equipment you need to thrive, without sacrificing cash flow or financial stability. Repayment is based on your sales volume, not a fixed monthly amount.
Tax Deductions and Soft Costs
In many cases, equipment financing payments may be considered an operating expense and, therefore, tax-deductible. Soft costs are any fees, taxes, or shipping charges associated with purchasing new equipment. With a conventional business loan, these soft costs are paid out of pocket. Sometimes alternative lenders allow a percentage of these costs to be incorporated into the equipment financing. Make sure to review this with your lender so you know if any of these costs may be included in the type of funding you obtain.