With all the talk these days about how hard it is to find financing for equipment, you might have given up. Don’t fret. There are still lenders willing to lend, you just have to know where to look.
Financing equipment for your small business becomes an even more important strategy when the economy is down. As it may be harder to obtain any new lines of credit, it is important to preserve your current lines of credit and working capital.
If you are like a lot of businesses, you need equipment in order to operate. Whether it be medical equipment for a doctor’s office, IT equipment and software for a business, transportation, construction, needs may vary by sector but the overall goal is the same.
One of the primary goals of business equipment finance is to acquire capital while managing your cash flow. Financing comes in two basic forms: secured lending and leasing. In secured financing you own the equipment while the lender has a lien against it, and you make regular payments until the lien is paid off. In leasing, a lessor controls the asset, and transfers possession of that asset to the business for a specific time period in exchange for periodic payments.
So what are the advantages of financing?
Preserving your working capital is one such advantage. When you pay cash for a large expense such as equipment, you create a financial risk to your business, especially if you are a small business. What if your business equipment does not have the effects you hoped for, i.e. increased profits, efficiency, etc? If you paid cash, your cash flow can become tighter. Using your existing lines of credit can be risk as well; what if you max those out and your bank is not willing to open any more for you?
You can even still find lenders that do not require a down payment. When you finance the full cost of equipment, it reduces your risk and transfers it to the lender.
Financing equipment also offers a hedge against inflation. When you finance equipment, the lender has a delayed use of funds because it does not get its money all at once. You pay over time. As time goes on, your money is worth less due to inflation. Since you are making a set amount for your payment, the risk of inflation now belongs to the lender.
Another thing to consider are the tax advantages. In addition to the usual tax advantages, from time to time Congress may vote for additional benefits as well, as they did for 2008. You lose certain tax advantages when you pay cash rather than finance your equipment.
You could also acquire more or better equipment by the use of equipment financing rather than dipping into your cash.
Look around, small business equipment financing loans are still available. The internet is a good source. There are still lenders who are willing to invest in your business, even in down times.