10 Reasons for your startup to consider equipment financing
Content provided by a guest contributor.
You’ve got the idea for your business. A small-medium size business that has a personal feel to it. Great. Most businesses need certain equipment to operate – from furniture to computers.
Aside from internally generated cash flow or credit lines, when looking to acquire equipment for your startup, you should investigate other ways to finance these acquisitions. And there are plenty of companies that offer equipment financing with a variety of options that are sure to suit your needs and budget.
For a small business like yours, financing the acquisition of equipment rather than using business’ cash offers significant benefits and mitigates risk. The direction you choose to go in order to finance your equipment will be based on factors such as: your company’s needs, practicality, cost-effectiveness, type and use of equipment, the length of time the equipment is needed for and cash flow related to present and future growth prospects.
In additions to this, examining ways in which financing equipment will benefit your company’s bottom line and operations, will help provide reasons to finance equipment. Some of these benefits include:
1. Flexible financial solutions
Although this sounds more like bank propaganda, equipment finance companies do offer tailored equipment financing. This will ensure that your startup, with its limited cash flow and tricky tax and accounting needs, will get the best possible financing. Having flexibility when it comes to capital is an enormous benefit for a startup.
2. Capital preservation
Following the previous point, any form of capital preservation in a startup is attractive. Investing in large capital expenditures (such as heavy machinery for example) represents enormous financial risk, especially for startups. Financing your equipment rather than forking out the cash for it can help mitigate the uncertainty of investing an asset that might not bring the desired return, increase efficiency and produce major cost savings. Lease payments, for example, can be matched to the equipment’s productivity and adapted if necessary.
3. Improved expense and budget planning
Maintaining cash flow and consistent budgets is another factor to consider. Instead of huge cash outlays that result in major budget fluctuations, financing enables a far more even expense planning. Tax considerations also come to the fore. Full leases or equipment loans allow the borrower (that’s you) to take depreciation on the asset acquired, while other leases may allow you to take lower payments with no depreciation. A loan will enable you to lock in your payments for the expected lifespan of the asset, while a lease provides a lower expense for the duration of the expected time of use.
4. Business operations flexibility
We’ve mentioned financial flexibility already, but some types leases allow for lower monthly payments while a project is still gaining business momentum and the revenue isn’t quite where you’d like it. This allows for the tiniest bit of breathing room, which can make all the difference as a startup.
5. Access to modern equipment
It’s an important competitive edge to use the latest and best equipment on offer in today’s business environment and there are plenty of businesses out there that simply can’t afford to buy the equipment they need to be able to thrive. By funding equipment acquisitions through agreeable long-term financing, businesses are often able to gain access to better equipment, that may have been out of their reach previously or if they considered acquiring it through a cash purchase.
6. Leveraging the financial institute for better equipment
Many equipment finance companies are equipment experts and offer specialty equipment that other financial sources may not. This is particularly true for the construction industry where some financial sources might have strong relationships with manufacturers or distributors. These relationships can be leveraged to secure the best possible prices, which will ultimately save you money.
7. Managed obsolescence
This is a major strategic benefit of equipment financing. The risk of owning obsolete equipment is eliminated if you use lease financing. This is because most agreements will allow for regular equipment updates.
8. Dependable asset management
Asset management is another major benefit in that it ensures that equipment in production isn’t misused. Knowing where your equipment is being used, how much it’s being used and when it’s expected to be upgraded or discarded is really important. It ties back into your business’ financial planning and budgeting. A good asset management program tracks equipment right the way through its lifespan; from delivery and installation through its disposition.
9. Equipment disposal is easier
The disposal of your equipment is another consideration before financing equipment. Many businesses don’t have the resources or knowledge to efficiently manage and sell their old equipment. The convenience of having equipment financed through a third party will let you focus on the actual business operations instead of being caught up by maintenance or reselling of assets.
10. Reduced risks
Purchasing equipment involves certain risks to you as an owner: do you have the right expertise to manage or use the equipment? Do you have the available funds to make the purchase? Can the business handle an outlay of that size? Financing removes most of these unnecessary risks, giving you some peace of mind and letting you focus on the job at hand.
It’s important to recognise the benefits of equipment financing and how it can enable your startup, getting you access to the equipment without the need for your business to be hamstrung by costs. Remember, you make money through the use of the equipment, not necessarily though owning it.
*This article was brought to you by WesBank, which provides equipment finance in South Africa.