For the typical business owner, they face off with a number of issues. From the comings and goings of business, they now have to manage to stay afloat during the middle of a pandemic. While the list of problems continues to grow, one thing businesses may not have thought about much is equipment. From the maintenance of equipment to the cost of it.
Needless to say, many companies are struggling in their own way in terms of equipment. From all of the costs to not having enough to afford equipment you need. In these events, our suggestion is to look into financing equipment. Even during this pandemic, there are tonnes of benefits to finance your equipment. Below are some of the key reasons to do this.
It Increases Working Capital
The first big benefit is that it improves your working capital. When you go to buy a piece of equipment, you end up spending a lot of money up front to get it. In most situations, a business who buys equipment flat-out will run into immediate cash flow problems for the first few months after the purchase. This purchase can often leave businesses in vulnerable states as they only need a month or two of bad sales to experience drawbacks.
When you are financing equipment though, you only have to worry about the much smaller payments. Because the financial strain isn’t as critical, you can use the rest of your working capital to cover other expenses.
You Have The Latest Equipment
When dealing with equipment leasing companies, it is their duty to have the latest pieces of equipment in that area. While they will have older models of things in some circumstances, you can rest assured you’re getting an effective and efficient tool from these companies. Best of all is that you don’t have to worry about the up front costs either.
This is big as one of the largest restrictions from obtaining latest equipment is the cost of having it in the building. From the up front costs to the maintenance and repairing of said equipment. Any time you can lower the costs of those is good. Especially when you are getting something brand new.
You Get Tax Benefits
Smart business owners are those who know how to make the most of tax breaks. And leasing equipment is definitely one of those big tax benefits you want to have. When you are equipment financing, the borrowing business is the one making the payments to the lender over a set period of time.
With every payment that you are making, you’ll also be paying interest. That interest you are paying is often a tax deductible that you can take advantage of. The reason for that is that it’s written up in the agreement of the lease.
But there are even bigger benefits. In most lease program terms, you’re able to write off the entire lease payment as a business expense. This means that you can write off the entire amount paid for the equipment (less the interest) from your annual tax report.
One other tax benefit to consider is government incentives. The tax code is always being updated with new legislation and some of those may affect equipment financing.
It Frees Up Other Funds
While we already covered equipment financing frees up working capital, it can also free up other funds. Instead of taking out a huge loan to cover a payment for a piece of equipment, you are settling with having the equipment for cheaper. Because you are saving so much money in comparison, that money can be spread to other parts of your business beyond working capital.
On top of that, the other consideration is alternative terms to finances – such as lines of credit. If you used a line of credit to pay for a piece of equipment, you can’t use that money to pay for other expenses. You remove that problem by equipment leasing which frees up that line of credit for more issues. Say you do run into operating expense issues, you can alleviate that by tapping into your line of credit without worry.
It’s Easy To Apply
The final benefit to cover is the process is easy. The biggest factor for how long the process takes depends on whether you’re getting a small ticket item or a big ticket item. How equipment leasing companies determine that is based on a set number of equipment cost in total. A small ticket item is when you are financing equipment that totals $200,000 or less. Big ticket items is anything above that $200,000 mark.
When dealing with small ticket items, the application process is driven by the type and value of the equipment. There’ll be a credit quality of the business as well. Overall, the entire process can be done within 24 hours.
Big ticket items though are a whole other story. Because there is more money changing hands in these circumstances, the application process is longer and in more detail. Generally speaking, businesses will need to collect information on the business itself, the specific type of equipment, and more. The process from start to finish can take about a week or two to complete.