It’s no secret that getting a business loan is critical in keeping your operations running. Having enough funds to pay for additional manpower is as important as consolidating debts to avoid penalty charges.
If you need to equip your business with machinery that can withstand extreme conditions, getting equipment financing is the best solution for you. In this article, we’ll tell you exactly why getting equipment financing is beneficial to your business.
What is equipment financing?
Equipment loans are a type of alternative financing that allows you to gain access to liquid funds for the purpose of acquiring new equipment or machinery. All construction businesses need equipment to function–from desktops to fleet vehicles.
How does equipment financing work?
Lenders will provide construction business owners with additional funds for various needs, using the equipment as collateral. The borrower is entitled to pay back the money with interest in monthly installments. Should the borrower fail to pay, the lender has rightful ownership of the equipment.
The process for getting a small business equipment lease is simple. Even construction business owners with bad credit can apply for equipment financing. In essence, you can amortize your debt for up to five years depending on your agreement with your lender.
At the end of your term and once the loan amount is paid in full, you already have full ownership of the equipment.
Why do construction businesses need an equipment loan?
As the construction scene continues to face the worst market conditions, many industry players are looking for ways to maximize their earnings, stick to their budget, and diversify their clientele.
However, some big-ticket projects would require the use of heavy-duty machineries to meet certain requirements. In which case, huge upfront costs just aren’t possible, especially today when most companies are trying to chase their lost earnings in 2020.
This is where equipment financing comes in: having sufficient funds for repairing, purchasing, replacing, or adding new equipment will go a long way to meeting client demands and overall growing your business.
The top 4 benefits of equipment financing
If you’re still on the fence about getting equipment financing, we rounded the top four benefits for you.
1. Improve your cash flow management
Upon purchasing your equipment, lenders will ask you to pay back the loan in equal monthly amortizations. The loan term will be agreed upon as well, so you have an idea of how long you’ll be paying for the equipment. The benefit here is that you get to plan your finances ahead of time to avoid missing out on payments.
2. Keep cash reserves for emergencies
Since you won’t be shelling out a huge amount of cash to purchase your equipment, you get to save your money for emergency cases. Imagine having to use your cash reserves for costly equipment replacements: would you be prepared when another pandemic hits?
While most small business owners can definitely afford to buy their needed heavy-duty machinery using the money from their own pockets, wise owners would choose not to. They would keep their capital for other important expenses, such as increasing inventory, paying engineers, or acquiring new clients.
3. Increase tax efficiency
If you’re not going to use the equipment for a long period of time, you might think that equipment financing is not the right solution for you. The truth is, you don’t necessarily have to take out a loan to purchase new equipment. Instead, you can lease the equipment instead.
Equipment leasing allows you to rent heavy equipment for a specific period of time. This means that you don’t have to take out a loan to use an equipment; you can simply pay for months you’ve used it then return the item to the owner once your term ends.
Opting for equipment leasing will be more tax efficient for you than purchasing outright. This is because you don’t have to declare it as an asset, sitting on your balance sheet. This can be logged as a monthly expense that you’re paying for to use the equipment.
4. Get the equipment you need ASAP
If you’re stripped with cash and you know that your construction project won’t move without the needed machine, then equipment financing can work to your advantage.
Equipment financing is not necessarily tied to the purchase of new equipment alone. You can use it to fund costly repairs or to upgrade the existing one you have. You can also use it to pay for construction software you wouldn’t usually have access to with limited funds.
Is it time to get equipment financing?
Getting the right equipment for your construction business can be a breeze when you already have the funds to get it. With equipment financing, you gain access to more capital for purchasing, repairing, and replacing machines.