Equipment financing is one of the most sought-after forms of credit available to businesses, and for good reason. Companies can not function without access to the equipment they need, and leasing is not always a good option. While small businesses often find themselves relying on investment money or lease agreements in their early days, understanding and using all the financing options available to a company can empower small companies to grow much faster while also opening up opportunities to reinvest profits by realizing a return on the investment faster than a cash purchase would.
Why Choose Purchasing Over Leasing?
Leasing can provide a tax advantage under the right circumstances, and it also comes with other benefits like having someone else deal with delivery and old equipment removal, but it doesn’t provide you with an asset that carries equity, so it limits your access to credit opportunities like leasebacks down the road. On top of that, the short terms most leases operate under are not always the best use of your money. Many of the core pieces of equipment that make up a company’s production infrastructure in most industries have long operational lives. For those pieces, equipment financing makes sense because it gets you to ROI quickly and lets you enjoy a larger return on the investment once the loan is totally paid off. On the other hand, for equipment that has a short window of useful life before obsolescence, leasing may work out to be the better choice.
Accessing Financing for Equipment
Loans for equipment are powerful tools, but they’re not always accessible to smaller companies. Lenders tend to have requirements for operating histories and cash reserves that are outside the reach of many smaller companies, but traditional loans are not the only option. With a slightly larger down payment and shorter loan terms, alternative financing can provide a path to equipment purchasing that still sidesteps the drawbacks of a cash purchase. Another option for investing in high-value assets like equipment is the SBA. Equipment financing from the Small Business Administration is one of the most popular types of financing they facilitate, and it allows small companies the opportunity to access loan terms normally reserved for larger businesses.
Finding the right path to financing is a careful process for any company, but especially smaller companies. As you think about the machines you need to keep your operation growing, think carefully about all your options, as well as your long-term plans for growth. That way, you’ll be able to better choose the right financing for each purchase you make.