Equipment financing today is used by a lot of companies. It is especially common among businesses that struggle to source traditional funding.
Given the ongoing economic uncertainty, many businesses prefer equipment financing today as a means of acquiring equipment. The current market shows that equipment financing is very much alive and available. This provides a way for businesses to acquire equipment and still achieve their financial and operational objectives. Financing has a lot of benefits which shows that you do not need to wait until the end of the year for you to be able to acquire new equipment.
Benefits of Equipment Financing Today
1. There Is A Reduced Risk
Financing equipment today helps businesses to avoid unnecessary risks such as equipment obsolescence, repair and maintenance, among other risks.
2. Dependable Asset Management
Many forms of equipment financing offer asset management as one of the key benefits. This ensures that the equipment is not over-utilized or under-utilized. Most programs geared towards asset management usually track equipment throughout its entire life beginning from the time it was delivered to the time of de-installation and disposition.
3. Managed Obsolescence
The good thing about equipment financing today is that the risk of equipment obsolescence is significantly reduced especially if you opt for lease financing. Many lease agreements allow for easy and fast equipment updates. Keep in mind that if your business requires equipment that needs to be frequently updated, it is better to sign a short-term lease contract that allows you to update your equipment at the end of the lease.
4. Equipment Expertise
Most equipment financing companies today have their own experts who offer equipment specialties that other sources of financing cannot. Most leasing companies have special relationships with distributors and manufacturers that specialize in certain types of equipment or industry categories.
Many businesses cannot afford to purchase high-tech equipment immediately. Equipment financing is able to give them the opportunity to acquire this equipment without making any upfront payments. For instance, an upcoming medical facility may not be able to purchase a high-tech MRI Machine right away but they can lease it. This way, they will not have to purchase the machine but they will still be able to use it.
6. Business Cycle Flexibility
There are certain types of leases that allow for seasonal business fluctuations. For instance, if you are in the farming business, your lessor may lower your monthly lease payments during the dry season when not enough revenue is being generated.
7. Improved Expense Planning
Another benefit of equipment financing today is consistent budgeting and maintaining cash flow. Instead of huge budget fluctuations which are as a result of considerable cash outlays, financing allows for even expense planning.
8. Capital Preservation
When you spend cash on investing in a capital asset, there is a slight chance that you may not get return on investment. You can mitigate this risk through asset financing.
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Are There Any Risks Of Equipment Financing Today?
The overall cost of equipment financing today might actually be higher than if you had just purchased the equipment outright. It is therefore important to perform a through cash analysis which will help you estimate the actual cost differential between purchasing and financing.
If you choose leasing to be your financing option, there is a chance that you might lose your tax benefits. If the IRS does not re-characterize your lease as a purchase for tax purposes, you can lose tax benefits that come with depreciation deductions when you actually own the equipment.
Once you sign up for equipment financing, you are generally committed to payments for the entire period even when you are not using the property. Most leases either have stiff penalties for early termination or are non-cancelable. In such a case, you should consider long-term asset financing if you plan to own the equipment. If you do not plan to use the equipment for a long time, then you should sign up for short-term financing.
With equipment financing today, you do not gain ownership interest. Lease payments do not establish any kind of equity in the leased equipment. This can be very painful especially if you grossly underestimated what the value of the equipment would be at the end of the lease. To mitigate this risk, you can negotiate a lease-to-own or purchase agreement with your leasing company.
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