5 Reasons to Consider Equipment Financing or Leasing
Many business owners experience hardship when it comes to maintaining the right equipment needed to guarantee success. The reality is that having the right tools to do the job is essential for a business to succeed but navigating the finances to equip a business with those tools can be costly. When it comes to purchasing equipment, business owners can utilize their operating cash flow and pay large sums up-front to secure the equipment they need, but there is also a variety of equipment financing programs that are available.
Equipment financing allows business owners flexibility by extending the payment terms of large equipment purchases over time rather than paying all at once. Equipment financing can typically be used to cover any kind of business operating expense – from vehicles to furniture to large machinery – and businesses that take advantage of these funding programs can often buy equipment through equipment financing plans at lower interest rates than with traditional loan options.
There are two types of equipment financing products available for business owners: equipment loans and equipment leases. Like most traditional loan options, equipment loans are typically a lump sum of money that a business borrows from a lender. However, with equipment loans, there is a restriction specifying that the funds must be used for equipment purchases. Another difference is that with equipment loans, the equipment itself is used as collateral to secure the amount borrowed. This is a benefit for many business owners who do not have other types of collateral to put up in order to secure funding, as the emphasis in the lending agreement is on the value of the equipment over the time of the loan rather than the credit history of the borrower, which is often more important for other types of loans. An equipment lease program is similar to a traditional car lease plan – the business makes monthly payments to a leasing company in order to cover the equipment rental payments.
Typically, a borrowing business will negotiate terms with the leasing company in order to set up the amounts of the monthly rental payments and the length of time for the terms of the lease. By leasing rather than making an up-front purchase, businesses can utilize upgraded equipment without the expensive hit on cash flow. Once the terms of the lease are up, there are usually three options for the borrower: end the terms of the lease and return the equipment; extend the terms of the lease and continue to make payments in order to continue using the equipment; or the option to buy the equipment outright from the lender.
To obtain the most effective and useful equipment without a 10% – 20% down payment that can impede any small business owners cashflow. Getting a $0 down financing program that allows the machine to pay for itself enables a small business to protect their cashflow, and help grow their revenue, their profits, and their business.
There are several benefits of equipment financing for business owners, including the increase in working capital, the ability to utilize the best equipment, the tax benefits associated with equipment financing, freeing up other lines of credit, and the easy application process. One clear benefit of equipment financing is the increase in working capital that is available when a business decides to utilize equipment financing rather than large up-front equipment purchases.
Almost every business owner experiences cashflow shortages at some point or another and equipment financing gives businesses an option to free up working capital for other expenses. When a business uses up their working capital to make equipment purchases, the cash flow available takes a big hit, which can leave many businesses short. By taking advantage of equipment financing instead, business owners can use their working capital to cover other operating expenses. —business.com
MMP Capital is a leader in equipment financing. Contact us today to schedule a free consultation.