Working capital is vital to every business. Preserving it can often be a struggle for the small business owner, especially when it’s time to purchase new equipment. Up-to-date equipment is a necessity to keep your business on the cutting edge and running smoothly. In some cases, it can be the difference between success and failure. Still, small business owners are typically hesitant to decrease or deplete their working capital to make these purchases and understandably so. Equipment financing can be a great alternative to tapping into working capital that enables owners to obtain the equipment they need to keep their business growing.
What is Equipment Financing?
Alternative finance companies and online lenders offer a variety of funding options including equipment financing. This type of funding allows a business to purchase new equipment without having to absorb the entire cost at one time. This is one of the many benefits and advantages equipment financing can provide.
Protect Cash Reserves
Purchasing new equipment is a big investment and a business’s cash reserves can really take a hit. While some may view equipment financing as a last resort, it is actually a great way to preserve working capital. Ensuring there is sufficient working capital available to support other areas of operations, as well as emergencies, is crucial to sustaining small business growth.
Quick Funding
It isn’t unusual for a small business owner to put off purchasing new equipment as long as possible. This can put them in a situation where they need the equipment immediately with no time to wait for a loan determination from the bank.
Most alternative lenders utilize advanced technology known as FinTech. This analyzes an applicant’s creditworthiness based on factors beyond just a credit score. It is an efficient process, facilitating a swift determination and once approved, quick funding. Â
Flexible Payment Options
With equipment financing, a business can choose to either lease or purchase equipment. Technology based businesses may choose to lease equipment, as it is constantly being updated. Other businesses will find it more beneficial to purchase the equipment. Either way, alternative lenders typically offer multiple repayment options, making it possible for a business to hang on to more of its working capital. The value of the equipment is taken into consideration when determining transaction terms and the equipment itself is collateral.
Expense Planning
Using a large chunk of your working capital to purchase new equipment can wreak havoc on your budget. Equipment financing can help a small business maintain proper cash flow and a consistent budget. This will make it easier to plan for your business’s expenses.
Tax Deductions and Soft Costs
In many cases, equipment financing payments may be considered an operating expense and, therefore, tax deductible. To be certain this applies to your situation, check with your business tax attorney.
Soft costs are any fees, taxes, or shipping charges associated with purchasing new equipment. With a conventional business loan, these soft costs are paid out of pocket. Alternative lenders will sometimes allow a percentage of these costs to be incorporated into the equipment financing. Make sure to review this with your lender so you know if any of these costs may be included in the type of funding you obtain.
Can Your Business Benefit from Equipment Financing?
Once you understand the benefits and advantages of equipment financing, you need to determine the best financing option for your small business. It is important to take the following into consideration: the time needed to pay back the loan, your tax situation, current budget as well as future business needs and growth plans. Equipment financing can be a powerful tool for business growth while also preserving working capital for other expenses and opportunities.
Equipment financing through CFG Merchant Solutions can help keep your business growing. We offer a variety of alternative financing options to keep your business on the cutting edge by providing efficient access to working capital. Don’t wait any longer – contact us to see how we can help grow and fund your business today!