Business equipment financing is any method of extending capital to a business for the purpose of acquiring the equipment it needs to operate smoothly.

A business can use many methods of financing such as obtaining government loans, leasing as well as sale-leaseback where the company collateralizes the equipment they have to raise money for additional equipment. It is estimated that more than 80% of US companies use some form of business equipment financing to obtain equipment. Given the economic climate, it seems like an excellent alternative source of capital for a business to acquire the equipment it needs. Leasing seems to be the preferred method of financing rather than obtaining a loan. This is because of the many advantages that it comes with.

Benefits Of Business Equipment Financing

Preservation Of Capital

Given the uncertainty that comes with investing in an asset that may not even yield the desired returns, leasing can help mitigate this uncertainty. What’s more is that if you need to do a large equipment purchase, you can overcome limitations in your budget by simply leasing. Leasing does not require a large cash outlay. It allows a business’s cash flow to be used on other capital needs that have a higher return on equity (ROE) and return on assets (ROA).

It Allows Flexibility

Depending on the relationship you establish between you and your lessor, your lease may be for the entire expected life of the asset or just for a few months. If for example, you lease farm equipment, once you are done with it, you can return it, purchase it at fair market value or purchase it at $1. This of course depends on the type of lease agreement you have with your lessor. Farming is a seasonal business and you may not need to use the equipment throughout the year. Such is the kind of asset flexibility that leasing allows.

Up-to-date Technology

Many businesses, especially upcoming ones, may not have enough capital to purchase high-tech equipment outright. Through business equipment financing, they are able to acquire this equipment, which would have otherwise been out of their reach.

The Risk Of Owning Obsolete Equipment Is Mitigated

If you use lease financing to acquire your equipment, the risk of being stuck with obsolete equipment is reduced. Many leases allow lessees to update their equipment without having to invest a lot of money. This is a huge advantage compared to making a direct purchase.

Tax Advantages

A lease can be structured as an on or off balance sheet. Lease payments are considered an expense and can therefore reduce tax liability. Always consult with your tax advisor about any tax advantages that may come with leasing.

Improved Expense Planning

One benefit that comes with business equipment financing is consistent budgeting and maintenance of cash flow. Huge budget fluctuations are usually the result of considerable capital outlays. Financing allows for even expense planning.

How To Choose The Right Business Equipment Financing Company

Finding the right finance company can make a huge difference towards how smoothly your business will run. The first thing to look for is the quality of service that the company provides. Poor quality service can be a huge drag on your business. The best way to find out about a company’s service is to talk to their previous and existing clients and gauge their responses.

They should also have an established and efficient process in which they handle equipment financing deals. More importantly, they should have enough experience handling the type of equipment financing you need. You should have the freedom to select the kind of equipment that your business needs. You do not have to choose second hand or outdated equipment if it will not help your business to run smoothly, even if it is cheap, because it will eventually hurt the interests of your business in the long run.

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Since there are no two businesses that are alike, the company you choose to lease from should not force you to choose a leasing plan that is not suitable for your business. The culture, mission, vision, needs and circumstances of every business is different so there cannot be a one size fits all type of solution. The leasing company should tailor their plan to suit your tax situation, capital, cash flow and needs of your company.

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