3 Benefits of Financing New Equipment
When you need new tools and machines to get your work done, you really only have three options. You can lease it without committing to a purchase, which is perfect when cash is tight or the need is temporary. You can also pay cash outright, which has some benefits but also creates the situation with the longest path to profitability. For most purchases, though, the best-case scenario is equipment financing with loans from either a bank or private lender. There are some concrete benefits to loans that combine the best of leasing and ownership.
1. Faster Profitability and Lowered Overhead
During the repayment phase of an equipment loan, you get a few of the benefits of leasing. While you cannot typically count loan payments as a cost of doing business, you can count on financing to make reaching a return on your investment faster. You only have to recover the down payment and then make more than the loan costs to get there. Once the loan is paid off, you get the benefit of the use of that equipment with no equipment cost overhead, which is something you never get with a lease.
2. Reduced Financial Risk
Equipment financing outsources the risks involved with growing a business by giving you a financial instrument that you can walk away from in a worst-case scenario. You lose access to the machines if that happens, but it can be a preferential situation to lose the cash value of those machines. If something happens and the deal does not suit your business any longer or you don’t have work that requires the machines, a default is an ugly form of damage control, but it is damage control. Assuming part of the risk in a deal is what lenders do, and it’s what you pay for when you pay interest.
3. Financing Brings Flexibility
You can find equipment loans for almost any term length you need. Traditional lenders and SBA programs offer incredibly long terms that help you get machines that make up your core infrastructure. For payment windows in the one-to-seven-year range, there are a variety of programs from private lenders and some from traditional lenders as well. Whether you are looking to make a big down payment that minimizes interest or trying to minimize up-front costs, you have a lot of options out there to choose from. The range of offerings tends to be more limited with leases, by comparison.