It’s normal to want to pay upfront, but don’t feel bad if you can’t – very few small businesses are in a position where they can fork over the full cost of pricey equipment all at once. It’s stressful to pay $5,000 one time at the cost of struggling to make ends meet for several months. That’s why equipment financing is important to consider.
But the idea of financing can sound stressful, too. All those payments? All that interest? Ultimately, financing isn’t an end-all, cure-all when it comes to your finances. When you use it correctly, however, it can help to maximize what you get out of your business. Want to know what we think the benefits of equipment financing are? Go ahead, keep reading.
Maximize Cash Flow with Equipment Financing
What does it truly mean to maximize cash flow? There are so many variables when it comes to using your working capital and revenue, but equipment financing can be a step you can take toward that financial nirvana of “maximizing cash flow.”
PNC Bank says this is the “most attractive benefit of leasing,” and we have to say we agree. Leasing and financing let you keep your cash coming in and still benefit from the equipment you need. If you spread out a large purchase into several smaller payments, it gives your company room to grow from the purchase, and not suffer from a large, one-time payment.
Say you’re grossing $10,000 per month from your business, but you need a piece of equipment for $10,000. If you use that entire month’s earnings to purchase it upfront, it would set you behind on several other bills and expenditures. If you split that purchase into 24 payments of $417 (plus interest, of course, which will vary by lender and financial history), it keeps your cash flow open for other opportunities, and you don’t have to stress about catching back up to the money you spent all at once. It also gives you a way to plan for the expense as opposed to just roughing it, and that can help make your cash flow more manageable.
That’s right, the government likes it when you finance. Payments could be tax-deductible, and you could write them off as an operating expense under the Financial Accounting Service Board’s (FASB) Statement 13. FASB 13 establishes what qualifies as an operating lease, and you can read more about if your lease would qualify here.
Make sure you always consult your accountant or tax professional when it comes to tax deductions, though.
Conservation of Capital
Equipment financing conserves existing capital for other payments, and doesn’t use up your credit card or line of credit. That means all these resources are reserved for other expenses or emergencies. Even if you have the existing cash to purchase a large piece of equipment, that cash could be better spent on another investment, or saved for an unexpected emergency purchase.
Equipment financing tends to be a faster way to fund purchases than a loan or line of credit, especially if you apply online through the lending marketplace. You can get approved for a maximum in minutes.
And perhaps one of the most important reasons to get any type of financing is that it helps you build business credit. Unlike personal credit, your business credit doesn’t acquire automatically – you have to personally report your credit to a business credit agency. So, if you’re not doing that, you don’t have any business credit built up. If you’re not receiving any financing, you don’t have a way to report and build that business credit, and that can be a problem later on. If you can separate your personal and business funds, it will be easier in the future to get a loan on behalf of your business.
Use equipment financing to build your business credit by making on-time payments. This way, you can have a better chance to get a lower-interest loan in the future, or refinance for a lower interest rate.
Looking for equipment financing? FaaSfunds has you covered. We match your business with the best financing options based on your financial history, instantly. Check us out below.