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6 Ways Equipment Financing Can Help Your Small Business Succeed
Every successful business owner knows that having the right equipment is necessary to ensure success. However, they also know that purchasing high-quality equipment or repairing a faulty one can be expensive. It doesn’t make sense for small businesses to tie a huge chunk of your working capital to buy equipment unless you have a large cash reserve. If you need to purchase equipment but you don’t have enough cash, you might want to consider applying for equipment financing.
Equipment financing gives business owners the flexibility to extend payment terms of expensive equipment purchases over time rather than paying in full. Many people think that equipment financing only applies to heavy-duty equipment like backhoes or tractors. However, this type of loan also finances vehicles, as well as furniture and fixtures.
To qualify for equipment financing, lenders will check your credit rating, profitability, time in business, and the type of equipment you want to buy. You don’t have to pledge personal or business assets to secure the loan since the equipment you’re looking to purchase serves as collateral.
If you plan to apply for equipment financing, here are six ways on how it can help your business.
1.Improve Cash Flow
Small businesses need cash on hand to pay for overhead expenses, make payroll, capitalize on new opportunities and prepare for emergencies. Equipment financing lets you keep as much working capital as possible. You don’t have to spend a portion of your capital to purchase equipment or upgrades when equipment financing is available. By applying for one, you’ll enjoy an improved cash flow that benefits your entire business operation.
2. Repairs are Often Covered
Even if you’re careful with your equipment, accidents happen and repairs are inevitable. With everyday wear and tear, a certain piece of equipment will depreciate. If you’re fully investing in new equipment, you may need to pay for costly repairs or replacements if something goes wrong. Many financing companies that offer equipment financing helps companies fix equipment problems ASAP. In this way, you don’t have to spend a lot of money on costly repairs and replacements.
3.Increase Working Capital
The increase in working capital is another sought-after benefit of equipment financing. With this type of funding, you don’t have to tap into your financial resources for large up-front equipment purchases. Cash flow issues are common among business owners. By applying for equipment financing, business owners can free up cash to use for other expenses.
Quality equipment and adequate working capital are important components of a successful business. If you purchase expensive equipment upfront, you’ll risk having cash flow issues, leaving business short on capital. Equipment financing gives you the funds you need to buy the necessary equipment so you can use your working capital to cover other expenses.
4.Option to Lease the Equipment
New tech solutions are expensive but they are a necessary part of your business. It can be frustrating to spend a lot of money on equipment that may soon become obsolete. If you think the equipment you’re going to purchase will become outdated in the next few years, you’re better off with an equipment lease rather than an equipment loan.
There are two types of equipment financing: equipment loans and leases. With equipment loans, lenders give you a lump sum to purchase a piece of equipment. On the other hand, equipment leases allow you to lease equipment for a certain period. Once the lease term is over, you can either purchase the equipment or return it. So if you’ve decided that you want to upgrade to newer equipment, you can end the lease and return the equipment.
5.Upgrade Your Equipment
As mentioned, equipment financing gives you the option to upgrade to new equipment and machinery. Most equipment, especially tech solutions, become outdated within a few years. A newer, faster, and more efficient version seems to come out every year.
If you choose equipment leasing, you can contact your financing partner and ask if you can upgrade to more advanced tools. In this way, you’ll still be in control of your finances while having the latest equipment at your disposal.
6. Enjoy Potential Tax Benefits
Not a lot of people know that they can enjoy potential tax benefits if they apply for equipment financing. Small business owners who lease equipment rather than buy can be given a tax break. In Section 179 of federal tax laws, the IRS granted that equipment leases are eligible for tax deductions. Businesses can deduct up to $500,000 for both new and used equipment.
Learn More on How Equipment Financing Can Help Your Business
If you need financial assistance when it comes to purchasing or leasing equipment, equipment financing is a great option. It gives you the funding you need to buy the necessary equipment without disrupting your cash flow.