How Small Businesses Can Use Equipment Financing
In order to produce goods and services, businesses need tooperate specialty equipment. Granted, not every companyrequires large pieces of manufacturing and processing machinery but every businessneeds something, and these essential operational elements cost money. While big firms may not struggle to acquire the necessary tools for their business, small companiesoften struggle to come up with the fundsfor essentialmachinery and tools. Equipment financing allows businessesthe option to purchase necessaryequipment immediately, pushing off full ownership until the loan is paid off. However, while this type of fundingis tempting, it is importantto understand what it is and what it isn’t.
Financing Can Be Useful
Whether a business needs a bulldozer, press, computer, software or furniture, equipment financing can help. The funds acquired through loan approval allow a companyto purchase any equipment essential to operations and/orproduction. In addition to initial purchases, these funds may also be used to upgrade equipment, depending on lender stipulations. Essentially, this type of financing allows companies who are currently unable to finance a majorequipment purchase the ability to purchase. Additionally, most of these loans do not require collateral as the equipment is used as its owncollateral, meaning that if the loanis not paid, the lender can repossess. This type of agreement limits the risk to the lender and secures the asset for the business.
Financing May Not Cover Complete Purchase
Those businesses that choose to use equipment financing may be discouraged to know that the loan will likely not cover the entire cost ofthe purchase. Many lenders offer to fundaround 80 to 90 percent of the total cost, leaving business owners between 10 to 20 percent to cover out of pocket. Additionally, as financing is a loan, there is interest involved, which means that the equipment will cost more to finance than to purchase outright. However, the additional expense of the interestis a small price to pay for the immediate use of the equipment. Many operations cannot afford to wait on equipment purchases, making financing one of only a few options.
Every business has equipment needs, whether for form or function. There are times when operations are stalledbecause of a lack of essential machinery, and if a companylacks the necessary cash flows for immediate purchase, then financing may be the only viable option. Equipment financing allows for quick funding of essential machinery enablingbusinessesto begin or maintain operations with limited interruptions.
