As you contemplate investing in new equipment, you may be evaluating the pros and cons of financing versus buying outright.
Although owning your equipment may seem ideal, there are several advantages to financing the purchase.
Businesses often rely on equipment financing, secured loans, or lines of credit for these investments.
In fact, within the 2022 Equipment Leasing & Finance Industry Horizon Report, it was found that 57.3% of equipment investments are financed.
Nearly all types of equipment used for business purposes can be financed. However, it’s essential to understand the process and weigh up the benefits and drawbacks before making your decision.
Four Key Reasons to Choose Equipment Financing
Several factors can influence the decision to purchase or finance business equipment, including cash flow, credit score, and individual preferences.
Here are five key reasons why many businesses opt for equipment financing instead of buying outright.
Minimised Initial Expenditure
Acquiring equipment can be a considerable financial burden, with ongoing costs accumulating quickly.
Financing equipment allows you to spread payments and maintenance costs over an extended period. This method lowers upfront costs, freeing up capital for other business ventures.
The flexibility of having reduced initial expenses is particularly valuable during economically unstable times, and fixed monthly payments make it easier to budget and plan.
Adaptable Terms
Financing is usually more straightforward to obtain and offers customisable terms. You can collaborate with your lender to negotiate lower monthly payments by extending your repayment schedule.
A fixed rate shields your business from inflation and fluctuating monthly payments.
Access to Superior Equipment
Limited funds may restrict your options when purchasing equipment.
Financing equipment, which involves lower initial costs, enables you to invest in more advanced equipment that can improve your business’s performance, especially when it comes to technology.
Tax Advantages
Financing equipment allows you to deduct payments as a business expense on your tax returns, which helps reduce the overall cost of financing the equipment.
Consult your tax advisor about potential deductions before finalising the purchase or signing a financing agreement, as laws vary across jurisdictions.
Factors to Consider Before Financing Equipment
Is equipment financing the best option for your business?
Reflect on these factors: business history, business and personal credit scores, and the type of lender.
Financing equipment can assist newer businesses in establishing creditworthiness, which is essential when applying for loans or lines of credit for future investments.
Choose your lender wisely though. Banks and building societies typically offer lower interest rates but have extensive application processes, and less creditworthy businesses may struggle to qualify.
In contrast, non-bank lenders offer a more efficient process and quicker funding.
Small businesses access unsecured, fast funding from Got Capital. As an alternative lender, Got Capital offers financing solutions specifically designed for and catered to the needs of SMEs.
