In today’s business world, acquiring equipment is vital to success. But, deciding how to acquire the equipment can be a major decision. Businesses have the option to purchase the equipment outright or use financing to acquire it. This article will highlight the advantages of equipment financing over purchasing equipment outright.
Every business needs equipment to run effectively. But, acquiring equipment can be expensive and can prove to be a significant financial burden on small and medium-sized enterprises. One of the most critical decisions businesses have to make is how to acquire equipment like general machinery, forklifts, materials handling, engineering equipment etc. Equipment financing– which includes Chattel Mortgage, Finance Lease, Rental (Operating Lease), and purchasing equipment outright are two options available to businesses. We will explore the advantages of equipment financing over purchasing equipment outright and help you make informed decisions.
What Is Equipment Financing?
Equipment financing is a funding option for businesses to acquire equipment without the need for a large upfront payment. Businesses can get equipment financing from banks, equipment manufacturers, and independent financing companies. Geared Asset provides businesses with a wide variety of commercial equipment financing options, including leases, loans, and lines of credit.
With equipment financing, businesses can get the equipment they need by making regular payments over a period of time. Financing can include the total cost of the equipment or just a portion of the cost.
Benefits Of Equipment Financing
Access equipment now and pay over time
The prime objective of financing is to allow your business access to new equipment immediately and then pay for it as you generate income. This then allows your business to generate income from the equipment to pay for it, rather than it simply being out of reach. Financing can make a project much more feasible than having to have sufficient cash or equity to otherwise purchase the equipment upfront.
One of the most significant advantages of equipment financing is that it allows you to conserve your cash flow. Rather than spending a large sum of money upfront to purchase equipment, you can spread out the cost over time.
Equipment financing provides more flexibility than purchasing equipment outright. Financing allows businesses to acquire the equipment they need without the need for a large upfront payment. This makes it easier for businesses to manage their cash flow and operate with a healthy financial reserve.
Equipment financing preserves working capital, which is essential for enterprises. With financing, businesses can use their working capital for other expenses, such as salaries, rent, and inventory- helping them keep their operations running smoothly and efficiently.
Equipment financing can offer tax benefits to businesses; they can deduct their monthly payments on their taxes, which can lower their taxable income. Additionally, companies can take advantage of Temporary tax depreciation incentives, which allow further deductions. Your Accountant can advise what degree of tax benefits and features are available for you based on your own circumstances.
It is crucial for businesses to have the latest equipment as it helps them maintain a competitive edge. The terms for plant equipment financing can be structured to enable companies to upgrade their equipment every few years.
Benefit From Inflation
Generally, people view inflation as a detrimental factor for an economy. However, in the context of making lending and financing decisions for acquiring new equipment, inflation can work in your favour. This is because instead of paying a large sum of money for new equipment, you can pay in instalments over an extended period with fixed rates and amounts.
As the value of your money declines due to inflation, you will essentially be purchasing your asset at a discounted price.
Purchasing Equipment Outright
Purchasing equipment outright requires a significant upfront payment, which can burden small or medium-sized businesses. This can deplete working capital and affect the business’s ability to operate efficiently.
Limited Cash Flow
Purchasing equipment outright can also limit cash flow. Once the equipment is purchased, businesses may not have the cash they need to operate the business effectively. This can be especially difficult for new corporations that are just starting out and need to conserve their financial resources.
The equipment depreciates over time, which means that its value decreases. When a business purchases the equipment outright, it is responsible for the cost of the equipment and any depreciation that occurs. This can impact the business’s financial statements and can reduce its profitability.
Equipment Maintenance And Upgrades
When businesses purchase equipment outright, they are responsible for its maintenance and upgrades. This can be a significant expense, especially if the equipment requires regular maintenance or upgrades. It can strain a business’s financial resources and limit its ability to invest in other areas of the business.
Equipment Financing Vs Purchasing Equipment Outright
When deciding between equipment financing and purchasing equipment outright, businesses should consider their financial situation, long-term goals, and the specific needs of their business. Some factors to consider include:
- Cost of the equipment
- Expected life of the equipment
- Maintenance and upgrade cost
- Cash flow needs of the business
- Tax implications
- Availability of financing
By considering the above factors, businesses can make an informed decision about whether to opt for equipment financing or purchase it outright.
Equipment financing offers many advantages over purchasing manufacturing or plant equipment outright. It provides businesses with flexibility, preserves cash flow and working capital, offers tax benefits, and allows for easy upgrades. When deciding how to acquire equipment, businesses should carefully consider their financial situation and the specific needs of their business.
Industrial equipment finance could be an effective way for your business to close the cash flow gap when acquiring new equipment. To find out how we can help you access the best finance options for your business, contact us here for any details on pricing or the process.