Many businesses nowadays experience hardship when it comes to purchasing and maintaining the adequate industrial equipment needed to guarantee success. While having the right equipment to do the job is vital for an organization to be successful, obtaining the required finances to buy such equipment can be very costly.
When it comes to buying the needed equipment, some successful business owners utilize their operating cash flow and pay hefty amounts of money up-front to secure the industrial equipment that their business needs. Still, not everyone can spend large sums of money up-front, so there are various industrial equipment financing programs available as well. These financial instruments allow business owners flexibility by stretching the payment terms of massive equipment purchases over time rather than paying them all at once.
Industrial equipment financing can be used to cover any business operating expenditure, from vehicles and pizza ovens to large and heavy machinery. Businesses that take advantage of these funding instruments buy their equipment through equipment financing plans with substantially lower interest rates than traditional loan options. The two most famous types of equipment financing products available to business owners who are eager to invest in advanced equipment and stay ahead of their competition are equipment financing (equipment loans) and equipment leasing.
According to the Equipment Leasing and Finance Association of USA, almost 80% of U.S. companies use financing when acquiring equipment, including equipment loans and equipment leases. That means that businesses in North America are massively utilizing these financial instruments and for good reasons. Read along to find out the top five reasons why companies should consider leasing or financing their industrial equipment.
Advantages Of Industrial Equipment Leasing And Financing
Equipment financing is hugely beneficial for smart business owners because it offers them the possibility to acquire the most valuable and useful industrial equipment while skipping the ridiculous up-front payments for the total equipment cost.
In the following paragraphs, we are going to discuss the top five benefits of these popular financial instruments, including the increase in working capital, tax benefits, the ability to employ the best equipment on the market, the possibility to free up existing lines of credit, and the straightforward application process.
Equipment Financing Can Increase Your Company’s Working Capital
The first clear benefit of equipment financing is the definite increase in working capital when a company decides to use equipment financing instruments rather than big up-front equipment purchases. As almost every business experiences periodical cash flow shortages, equipment loans and leasing can allow companies to free up working capital to service some other company expenses.
When a company uses up its working capital to purchase a significant piece of equipment, the cash flow available always takes a huge hit, leaving the business short. By utilizing some of the equipment financing models, business owners save their working capital and cover other operating costs.
Tax Benefits For Equipment Financing
Another important reason why businesses should consider leasing or financing their industrial equipment is the tax benefit. Seasoned business executives know how to use tax breaks to their advantage and closely work with highly-skilled tax professionals to capitalize on all possible benefits.
With equipment financing, the borrowing party should make payments to the lender over the agreed-upon terms, and with each payment, there is interest paid. The interest paid on the monthly fees can be written off as tax-deductible for most equipment loan terms.
With equipment leasing, there are even more significant tax benefits as for most lease program terms, the user of the financial tool can write off the entire lease payment as a business expense and not only the interest paid. This means that the overall amount spent on the equipment can be written off by deducting the repeated lease installments on the annual tax report.
Taking Advantage Of New Technology And The Best Equipment
Equipment financing allows companies to take advantage of new technology and the latest equipment available by giving them the possibility to purchase the needed equipment without worrying about the up-front cost.
New, state-of-the-art equipment is never cheap, and not every business owner can afford to buy the latest one. That’s why equipment financing gives business owners the chance to acquire the needed equipment without having to blow the working capital.
Equipment Financing Can Free Up Other Lines Of Credit
Instead of using a regular bank loan to apply for finances that will be used to purchase new business equipment, business executives that exercise the option to obtain equipment financing for their equipment expenses will still have their other credit lines open.
For instance, if a restaurant chain wants to purchase ten wood-fired pizza ovens, but the owner currently doesn’t have all the funds available, he can apply for a regular business loan at the bank and receive a lump sum of money to purchase the ten wood-fired pizza ovens. In this case, the borrowing party will have to spend a large chunk of the business loan on the equipment purchase, resulting in a working capital shortage.
Suppose the restaurant owner applies for equipment financing or leasing to take care of the pizza ovens, and the business runs into a capital shortage. In that case, he will still have the option to apply for a regular business loan to cover the deficit. Besides, equipment financing usually uses the equipment itself as collateral to secure the loan in the first place, so any other collateral that the borrowing party can offer may be used to secure additional financing products.
The Application Process Is Straightforward And Easy
The application process for equipment financing for equipment costs up to $150,000 is extremely easy and quick. The complete process from application to closing is often completed within twenty-four hours.
If the borrowing party has a strong personal credit, the company has been in good standing for a more extended period, and the equipment that’s financed will hold its value in the foreseeable future, borrowers can expect a swift application process.
For equipment that costs more than $150,000, the process is a little more intricate as the lender will need to collect more information about the borrowing party and the type of equipment so that the process might take up to a couple of weeks.
The purchase of much-needed industrial equipment doesn’t need to be such a heavy financial burden to companies worldwide anymore. That’s why companies in the USA and Canada are massively utilizing the financial programs for purchasing industrial equipment that, at the same time, are both very useful and beneficial. Now that you know the main reasons why businesses use equipment loans and leases, don’t hesitate to invest in your business’s future and obtain the equipment that can instantly skyrocket your business!
- Pros and Cons of Financing a Business
- Increase Your Business Growth and Cash Flow Through Equipment Leasing
- 12 Tips for Getting Your Bank Loan Approved
- Evaluating Financing Options for Your Business: Myths and Facts
- How The Pay Day Loan Process Works