Whether you’re running a salon, a trucking company, or even working out of your home, it’s likely that at least one piece of equipment plays an integral role in how your business functions. If you can’t pay for equipment out of pocket, your best option may be to seek equipment financing.
Most equipment is expensive, and with countless other business expenses you must afford, it might be too costly for you to purchase. Luckily, business owners can turn to equipment loans for their financing needs.
Both large and small businesses use equipment financing as one of the most important ways to invest in capital while managing cash flow and the company’s balance sheet. Equipment financing allows companies to acquire equipment while avoiding many of the uncertainties often associated with new equipment acquisition.
What Is Equipment Financing?
Equipment financing is the use of a loan or lease to purchase or borrow hard assets for your business. This type of financing can be used to purchase or borrow any physical asset, such as a restaurant oven or a company car. There is an enormous number of variations on equipment financing that cater to specific types of businesses and equipment.
Unlike a working capital loan, the asset you’re purchasing serves as its own collateral. For this reason, equipment financing tends to be a more cost-effective and lower-risk way to acquire equipment than other forms of financing.
Deciding if an equipment loan is right for your business will depend on several factors. However, if you’re reliant on expensive equipment to run your business, equipment financing could be a viable option.
How Does Equipment Financing Work?
Running a business comes with many questions, and how and when to seek out a loan is one of them. Before you do so, it will help to know a few simple answers to clarify your equipment loan needs:
- What equipment do you need and is it essential to business operations?
- How much monthly revenue do you have, or do you anticipate?
- How much cash flow do you have to pay loan installments?
- Will this equipment help increase revenue? By how much?
- Do you have cash reserves and if so, how much?
- Do you want to purchase new or used equipment?
By answering these questions, you should have a clear idea of what you can afford and what’s absolutely essential to help your business grow and thrive.
It’s important that before contacting Arsenal Funding you have an idea of exactly what you are looking to buy. In most cases, the equipment financer is covering either all or a percentage of the cost of your equipment and will directly pay the vendor for the equipment without the money ever entering your bank account.
The length of time of your equipment finance will vary depending on what type you choose, but it’s usually anywhere between two and seven years. Over that time, you’ll typically make monthly payments, paying off the principal plus interest.
Loan or Lease?
Equipment loans are taken out to purchase equipment, with the express purpose being that you will soon be purchasing it. For business owners who can’t afford to make the purchase outright, these loans are a great option. They allow you access and control of an expensive piece of equipment long-term without having heavy debt load on your company’s bottom line.
Leasing may be the perfect solution for you if your company needs to replace equipment often or doesn’t have enough capital available. It’s also more likely to cover additional soft costs associated with shipping and installing the equipment. Instead of borrowing money to purchase the equipment, you’re paying a fee to borrow the equipment. The leasing company technically maintains ownership of the equipment but lets you use it. In order to keep up with the latest trends and technology, many companies lease their equipment instead of buying it. This allows them more freedom to upgrade as needed or when newer models are released.
Is Equipment Financing Right for You?
The key to success is knowing how and when you can make use of equipment financing. This includes such things as vehicles, computers or machinery that may be utilized by your business for its operations
Equipment financing can help when you need expensive equipment but can’t afford to purchase that equipment upfront, if you need to replace your equipment frequently because it has a short lifespan, or you always need the latest in technology.
There are many benefits to equipment financing, such as:
- Preserving working capital – equipment financing is a source of funding that allows you to not only keep your cash, but use it as working capital for other areas of your business such as expansion, improvements, marketing, or R&D.
- Managing risk – equipment financing can help mitigate the uncertainty of investing in a capital asset your business needs until it achieves a desired return, increases efficiency, saves costs, or meets other business objectives.
- Flexibility in terms and payments – equipment financing may hedge inflation risk because you can delay paying for your equipment in today’s dollars. In addition, either a lease or loan can lock in the rates that exist on the date of the closing.
- Potential tax advantages – tax-oriented leases are a great way for businesses to take advantage of lower rent prices, as the lessor retains title and depreciation. A tax-oriented lease is a transaction that includes the value of tax benefits.
Whether leasing or buying, equipment financing can help you build credit, be an affordable option, and allow you to get the equipment you need for your business to grow. It’s likely you will receive the funds you need in just a few days thanks to Arsenal’s streamlined application and approval process!