Equipment financing is a type of loan specifically designed to buy equipment to supplement business ventures. When your business is in need of equipment, but you lack the capital to buy it outright, equipment financing is a solution. It works by establishing a line of credit that is then used purchase the equipment.
This type of loan is relatively easy to qualify for, and the amount of money you'll be eligible to borrow is based on the type of equipment you're planning to purchase, along with its condition -- used or new. Often times a predetermined downpayment is required to qualify but will equate to far less than the alternative of having to pay for the equipment outright.
Once a purchase has been made, the business simply pays off their debt on a monthly basis. Payments must continually be made until the debt is paid off. If you choose to sell or trade in this equipment, keep in mind you are still responsible for the remaining balance.
The Benefits of Equipment Financing:
- Daily operations are not affected with equipment financing. The payments are affordable and there is no need to worry about cutting back on other initiatives while paying off this debt.
- The recurring monthly payments remain the same over the course of the loan. This relieves business owners of inflation or sudden equipment cost hikes.
- The monthly payments made, along with the overall cost of equipment, is often times tax deductible. This establishes a constant flow of expenses on your tax return which, in turn, lowers taxes owed.
- The lack of up-front equipment costs frees up working capital to be used on other initiatives.
Why Business Owners Should Choose Equipment Financing
Thе right equipment will help your business to become more productive, efficient and most importantly, more profitable. To run a company efficiently, it is crucial to have access to the latest supplies and equipment needed in order to thrive in competitive industries. For example, a trucking company will fail without compliant trucks, a retail sales business will fail without new inventory, and a dentist's office cannot effectively help clients without the newest technologies.
The Bottom Line
If your business goal is to drive your business forward but you lack the necessary cash flow to invest in new equipment (or any new initiatives), then equipment financing is a viable solution.