What is Equipment Finance?
Equipment finance is a loan or lease that is used to acquire business equipment. Business equipment may be any tangible asset other than real estate – such as office furniture, computer equipment, machines used in manufacturing, medical equipment, and company vehicles.
Understanding Equipment Finance
Equipment finance is an integral part of business for a couple of reasons.
First, for a startup or early-stage company, equipment financing is an elemental step in getting the business going.
Second, as equipment financing is used to obtain costly equipment, the debt sustained represents a major financial commitment. So, business owners must carefully decide any equipment finance plan and try to secure the best possible financing terms.
Here are some tailor-made methods of equipment finance
Fast approvals to keep operations moving
Many businesses looking to purchase equipment need the equipment to conserve the operations and function at full production capacity. Slow approval sometimes delays equipment access, disrupting operations, and cutting revenues.
With same-day approvals, the business can have reduced delays created by the lending process itself, fast-tracking the new equipment possession. Processing delays can create financial jams, create production bottlenecks, or even halt operations. Convenient approvals eliminate delays in the business.
Funding access for startups
For new businesses without a strong credit background or other financials, traditional lending may not be helpful. This ends up creating even more challenges for new businesses instead of offering services to support new business success.
With flexible loan programs to serve new businesses and other small businesses facing limitations of poor or no credit, equipment financing can provide more reliable funding to help businesses prosper.
In most cases, the flexibility of these options advances the financial products aimed at small businesses by more traditional lenders.
No need to provide own collateral
Traditional lenders typically want small businesses to provide collateral against any equipment financing they provide. But a new business might not have the assets needed to fulfill this requirement.
Equipment financing has a way around this by using the equipment as its collateral for the funding. This eases an important pain point that can challenge business models where the collateral is not easy to provide.
As the business moves forward, these owned assets will strengthen the business’s financial standing and open even more doors to funding options.
Own the equipment outright
At the end of the repayment period, businesses can completely own the equipment they have financed, providing them with an asset that can support the business in the future when collateral is needed or when being valued.
By owning the equipment, businesses can claim depreciation that reduces the taxes. A financial specialist can help in understanding exactly how to claim depreciation and make sure depreciation is claimed according to relevant tax laws.
Keep the cash reserves, protect the cash flow
By financing equipment instead of purchasing in cash, businesses can maintain larger cash reserves.
The money can be used to support business growth in other ways, such as with greater investments into equipment or services, or a better financial cushion to keep the business sound as it builds success. Liquidity is its kind of asset, giving the business flexibility to address new challenges or seize upon new business opportunities that may come the way.
Preserving the cash reserves gives the business flexibility, which is why many business owners go for a business equipment loan even though they can afford the cost of equipment.
Financing that helps the business grow
Many traditional lenders provide limited lending options that create challenges for businesses, instead of leading the way to greater success.
Business owners should not let limited options place a strain on the business model. Using business equipment loans to harness the support your business needs to prosper is the best way.