At first glance, it may seem unfeasible to utilize equipment financing as an option over paying directly with cash. Especially in the case of a loan, as you’ll end up paying more due to accruing interest over the repayment period. While this may be true in many cases, there are real, notable benefits that come with equipment financing.
Here are five reasons equipment financing makes great business sense –
- Improves cash flow
- Improves credit score
- Low-interest rates
- Higher quality equipment
- Greater potential for growth
Improves Cash Flow
As you probably know, cash is king. It is a foundational element in any business. The primary benefit of using cash for purchasing equipment would be the fact that it’s a straightforward process. The transaction is carried out instantly, there’s comparatively very little paperwork involved, and you acquire full ownership of the equipment upon purchase.
It’s precisely this importance of cash that gives equipment financing the primary benefit of improving cash flow.
A significant part of business expenses already demand a steady supply of cash. This makes it crucial to maintain cash reserves at all times. Therefore, using up a substantial portion of your available money on equipment may not be the best strategy for your business as a whole. Financing is an option that can free up fluidity for other budget requirements in different areas of your business.
Making smaller payments over time is more manageable than paying out a larger lump sum upfront. Equipment financing ensures that your business will always have cash when it needs it. In the event of an emergency or the presence of an opportunity, you will be prepared with cash.
Improves Credit Score
Using equipment financing is a great way to improve your business’s credit score. A higher credit score enables your business to acquire loans more successfully, on better terms, and with lower interest rates.
Seeking equipment financing and paying it off promptly significantly develops your business’s credit score. It can make future business financing a breeze and act as an essential safety measure in down times. Being able to acquire a loan at a low-interest rate readily can be very useful down the road.
By contrast, not having an acceptable credit score makes acquiring future financing in a timely and favorable manner much more challenging.
Businesses can attain equipment financing at interest rates starting at 2%. This range is primarily dictated by factors such as your business’s length of operation, current cash reserves, and credit score. This rate can often prove favorable depending on the equipment you need financing on.
Leveraging low-interest rates on equipment can put your business in a better position. In some cases, you can create larger returns than the cost of the interest paid on financing the right equipment.
This, of course, is something that has to be appropriately analyzed. Consulting a financial advisor about the feasibility of financing will help you make an informed decision.
Higher Quality Equipment
High-quality equipment does not come cheap. This leaves many businesses with the options of settling for substandard equipment, jeopardizing their quality, using up most of their cash reserves, or saving up for machinery (which will likely take time).
Equipment financing solves these problems. It allows your business to procure higher quality, more expensive, but much-needed equipment on a flexible long-term payment plan.
Greater Potential For Growth
This is especially true for newer businesses that are looking to expand. The right equipment could be the push your business needs to propel it in the right direction.
For cash crunched businesses, equipment financing can make things a lot easier. A proper payment plan will allow you to use the gradual returns from the equipment to pay off the purchase cost. This can lead to a self-sustaining payment system, where you get ownership of the equipment once payment is complete.
It’s also important to consider that sudden opportunities that require cash may present themselves from time to time. Lack of cash can allow the chance to slip away while you attempt to gather funds. Financing will enable you to have equipment and cash reserves, enabling you to take advantage of these opportunities fully.