If you plan on starting a business today, you’ll need some tools and equipment, and these things cost money. If you set up an office, you’ll probably need computers and software. If you own a construction company, you’ll need heavy duty vehicles. If you open a hospital, you’ll need X-ray machines and other similar equipment. All these things are expensive which is why it is necessary to have sufficient business working capital.
Features of Equipment Finance
If you spend all your startup money in expensive equipment, you may not have enough business working capital to deal with day-to-day expenses such as salaries, rent, and utilities. Fortunately, you can free up some money to improve your cash flow through equipment finance. Essentially, you get a loan with your equipment as collateral. If ever you fail to make the payments, the equipment will be taken away from you.
One factor that needs to be considered here is that the loan cannot be more than what the equipment is worth. This is obvious, since if you default on the loan then the equipment won’t cover the amount you owe.
Another consideration is that the loan period cannot be longer than the useful shelf life of the equipment. Some types of equipment simply become obsolete after a few years.
Advantages of Equipment Finance
With equipment finance, you can take advantage of several benefits which you may not get through other means:
- This method of financing can be very quick and easy to arrange. This is especially true compared to other traditional forms of financing. Banks, in particular, move like molasses in granting such a loan. That is, if you even find a bank willing to provide this kind of financing.
- Once you get the money, you can easily solve your cash flow problems. You now have the money available for various daily expenses so that your business can operate more smoothly and efficiently.
- You can also use the money to develop other aspects of your business in order to increase your revenues.
Leasing
Keep in mind, though, that if you plan on using equipment finance you may want to do so even before you buy the equipment. You may be able to make regular partial payments for the equipment you need rather than spending a bulk of your business working capital on it. So in a way, you’re leasing the equipment.
By getting equipment financing this way, you may be able to avail of the latest high-tech equipment right away, which gives you a significant advantage over your competitors. You may even gain access to specialized equipment through the leasing company, which may have special working relationships with equipment manufacturers who produce what you need for your business.
This can also improve your cash flow so that you can deal with overhead expenses and also have enough money for growth and expansion opportunities when they arise. Leasing also protects you from having to hang on to equipment that has become obsolete, which can hamper with your business goals.
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