Talk To Your Clients Or Prospects About The 5 Benefits Of Equipment Financing

Equipment plays a crucial role in the growth strategies of most businesses. However, the high cost of acquiring new equipment often poses a major challenge for these businesses. To overcome this hurdle, most businesses opt for financing a portion of the acquisition cost. Most lenders can finance up to 100% of the equipment cost and up to 20% of soft costs which makes it possible for businesses to redeploy their cash to keep the business operating efficiently and growing! Below are 5 reasons why businesses should flex the full range of benefits of equipment financing.

Benefit 1: Preserving Cash

By financing equipment, businesses can preserve their cash reserves for other essential purposes. Banks provide various financing options that offer flexibility when it comes to acquiring equipment. This approach allows businesses to utilize their cash for purchasing inventory, paying salaries, hiring employees, funding tenant improvements, or covering other expenses typically handled with cash. Equipment financing enables businesses to obtain the necessary equipment for growth while structuring the payments to make it affordable and conserve cash.

Benefit 2: Conserving Their Line of Credit

Similar to cash preservation, businesses that choose equipment financing can strategically use their line of credit. Instead of utilizing the line of credit for equipment purchases, it is more advantageous to analyze the asset's lifespan and opt for a fixed-rate or floating-rate financing specific to that asset. This approach ensures that the line of credit remains available for addressing inflationary costs of inventory or handling larger payables due to cyclical patterns in the business.

Benefit 3: Boosting Growth Potential

There are situations where securing a new contract depends on a business' ability to acquire a significant piece of equipment. However, there is a risk that the equipment may become obsolete once the contract ends. Equipment financing mitigates this risk and enables businesses to seize new opportunities while minimizing long-term liabilities & risk. For instance, a construction company that wins a three-year contract requiring new heavy equipment can finance the equipment through a lease structure that aligns with the contract duration.

Benefit 4: Cost Reduction and Revenue Growth

Investing in new equipment can lead to substantial reductions in operating costs and drive business growth. Upgraded equipment often enables employees to complete tasks more efficiently, reduces errors, and improve product quality. Additionally, it allows businesses to stay abreast of emerging technologies by regularly replacing equipment. For manufacturers aiming to remain competitive, keeping pace with technological advancements is crucial. Modern equipment and technology not only reassure customers but also attract new ones due to improved speed, capabilities, and quality.

Benefit 5: Tax Benefits

There are significant tax incentives for businesses that invest in new equipment. Equipment financing provides businesses with multiple options to capitalize on these incentives. For example, traditional equipment loans or finance leases allow companies to claim depreciation and interest deductions similar to if they had paid in cash. However, some companies may not have sufficient net income to fully utilize the available depreciation. In such cases, an operating lease presents an alternative avenue to realize these tax benefits. It is advisable to consult a tax advisor for further guidance.

 These advantages offer great flexibility to businesses grappling with substantial equipment costs, making equipment financing an essential tool for fostering business growth. I recently published an article title “Equipment Financing 101” on the types of equipment financing available in the marketplace. You can read the LinkedIn article using this link: https://www.linkedin.com/pulse/equipment-financing-101-victor-castillo/?trackingId=Z3f1ArUOQOeTTaFicYR9Tg%3D%3D

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