Understanding How Equipment Financing Helps Your Business
Equipment financing is a great option for businesses who need cash but are short of it. When using equipment financing as a means of borrowing money, you pay only one installment per month instead of several. The payments you make are also much smaller than those required by loans. Here are some benefits to purchasing equipment with equipment financing.
Capitalizing on your current inventory can free up cash flow. With equipment financing, you are able to fund the full, entire cost, which includes installation, equipment, software, training, maintenance and any other services, over a single contract. Using this method also allows small businesses to quickly turn their business around and increase profits. This is especially beneficial in the current economic climate. Businesses are often in need of new equipment and are struggling to find investors willing to provide the capital needed to purchase it.
Businesses can also utilize equipment financing to consolidate debt. By paying off one loan with equipment financing instead of several different ones, small business owners will free up cash flow. By paying off the total cost instead of several instalments, they will also be able to negotiate better terms on future bank lines of credit. As long as the company meets all of their financial obligations, they will not have to pay interest on the equipment.
Leasing is a popular method of using equipment financing to maintain cash flows. For example, a restaurant may lease kitchen equipment to meet equipment needs. When paying for the equipment, the restaurant will use equipment financing to repay the lease, keeping cash flow coming into the business. This option is often used by restaurants that want to expand. A growing business can easily add employees by leasing equipment.
Many people also use equipment financing to obtain equipment outright. They can obtain equipment loans through banks, private lenders and credit unions. Lenders are more likely to provide equipment loans for small businesses in light of their higher risk of non-payment. Equipment financing in this form also offers a number of tax benefits. The equipment lease amount also depreciates over time, providing a tax write-off over time.
There are many reasons why companies choose equipment financing to fund their business ventures. Most of these reasons relate to cash flow needs, business expansion or purchasing a specific piece of equipment that is not readily available through other sources. While using bank lines of credit can help relieve immediate cash flow needs, it does not always generate the same kind of cash flow that is required for large purchases or to maintain a rapid growth rate. Business owners should determine their individual cash needs before utilizing bank financing. They should then determine which financing options would be best to meet those needs.