Equipment can be a big cost, especially if your business requires specialized equipment such as medical, computer or construction machinery. You may not have the capital available to obtain the necessary equipment on your own. Since having access to the appropriate tools is essential to running your company, you may be considering equipment financing, but wonder what the process entails. Here’s a breakdown of what this type of financing covers and how your business can benefit.
What Is Equipment Financing?
Equipment financing is a type of loan that specifically covers equipment used by a company to meet business needs. This can range from office machinery like a copier to specially designed technology like a CAT scan machine. A variety of financial institutions offer this kind of loan, including credit unions, financial companies and traditional banks.
You also have the option to either utilize a loan for outright purchasing or opt for leasing through the financial institution. While both of these are valid options, you may prefer one over the other based on business structure, market and needs. For example, if your company deals in technology and must keep up with the latest trends and breakthroughs, you may prefer to lease, since you can upgrade your equipment as part of your contract.
What Are the Benefits?
One of the greatest benefits of this particular financing is the access to capital without taking funds from another business area. Spending a large amount of cash, which purchasing equipment usually requires, can be a big risk. Loans or leasing can mitigate that risk by distributing the cost over time, allowing you more capital from month to month to manage your budget.
Depending on your lender, you may also be able to arrange for payments which change over time. It’s generally understood that new or additional equipment can increase efficiency, but these gains are usually seen over an extended period rather than immediately. In fact, depending on the equipment and relative experience of the individuals operating it, efficiency may decrease temporarily as staff learn how to operate the machinery, or any compatibility issues are identified and fixed. With this in mind, a lender may structure payments to be smaller at the beginning of the loan or lease in anticipation of a small return, then gradually increase the amount as the equipment reaches its full efficiency.
If your business relies on machinery to deliver goods and services, equipment financing may be right for you. You can invest in your future while balancing your budget and meet demands more efficiently than ever before.