All you hear these days is that credit markets are tightening and small business is having a harder time financing equipment. That’s not always true, though. 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.
Most businesses need some sort of equipment in order to operate. If you are looking to financing medical equipment, IT software and equipment, trucking or commercial, construction and heavy equipment, the needs may vary but the common goal is the same.
The primary goal of business equipment financing is to invest in capital while managing your cash flow and balance sheet. 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. Paying cash for a large expenditure creates a risk on many levels, especially for 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 your lines of credit are maxed out by purchasing equipment and the bank is not willing to open any more lines 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. Your money loses value over time due to inflation. However, because you are locked in to a set payment, the risk of inflation is transferred 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.
If you do your research, you can still find small business equipment financing loan options. The internet is a good source. There are still lenders who are willing to invest in your business, even in down times.
J. Roh writes on topics of interest to small business owners and offers business equipment financing. For more information or to apply online, visit www.profastbilling.com.