Companies begin as abstract ideas, but to truly start operating they need tangible equipment to deliver valuable products and services. Their needs may range from computers and photocopiers to dump trucks and backhoes.
“Financing in the form of leases and loans allows businesses to make large purchases to start or maintain their operations without having to pay for everything in cash,” says Bert Bryan, president of CU Business Capital.
Smart Business spoke with Bryan about the significant role of equipment financing for companies and how business owners can choose the best equipment financing.
What equipment can businesses finance?
Financing can be arranged for any type or cost of equipment. This means businesses looking to borrow $300 to buy a piece of computer software or companies seeking a million-dollar loan for a piece of manufacturing equipment can turn to a credit union or bank for leasing or loans.
Why is planned equipment financing important for businesses?
Equipment leasing and loans can not only assist businesses in the short-term with purchasing items but also can help with long-term financial issues. Business owners need to plan for depreciation, which is the reduction in value of their equipment over time. They also need to prepare for obsolescence, the point at which items are no longer useful.
Planning with the counsel of financial professionals helps business owners to take on a reasonable amount of debt to meet current needs and also to be ready to make new purchases when their existing equipment has reached the end of its useful life. This foresight reduces large fluctuations in a company’s working capital, which is the amount of money they need to carry on their day-to-day operations.
Can business owners apply for financing that covers multiple pieces of equipment?
Yes, lenders and leasers can arrange financing for any variety and quantity of equipment. This allows business owners to receive the money for large, multiunit purchases through a single loan or lease. Having a financing source that covers a bulk purchase helps business owners when they are negotiating and closing deals with suppliers. Also, this simplifies their loan repayment process.
When should companies apply for equipment financing?
We advise our business members to arrange financing before shopping for equipment. This helps them to simplify the pricing analysis. Advance credit approval allows them to clearly separate the cost of the equipment from the cost of financing. And prior approval assures that a carefully negotiated deal won’t be delayed or fall through at the last minute due to financing problems.
What factors should business owners consider when they search for equipment financing?
Numerous important factors come into play in the search for the best equipment financing. Some considerations to keep in mind include how much the company will have to pay each month, including the opportunity to participate in special payment plans. Difference in interest rates, costs and fees can lead to huge differences in financing costs, especially with large purchases.
Also, business owners should consider how easily and speedily they can apply for and close on a loan. Depending on the size and structure of the bank, business loans could be approved in days or take weeks. If you need a loan approved within a short amount of time, make sure that the credit union or bank can provide a turnaround time that fits within your timeframe.
Are there special interest rates or payment plans available for equipment financing?
Yes. Interest rates and payment plans can be structured around factors including the type of equipment, the credit history of the borrower, the length of the loan and the residual value of the equipment. The financial adviser handling your loan should be able to explain to you the different elements of an equipment-financing loan.
The benefit of equipment financing is that the repayment plan can be matched to the useful life of or income generated from the equipment. This coordination of the value of the equipment with the loan payments keeps companies from continuing to pay for items past the time when they have any cash value or usefulness to the company.
Do certain types of equipment financing offer tax advantages?
Yes. When a business considers the acquisition of equipment, it should look into the tax advantages of capital and operating leases in comparison to conventional loans. Business owners should consult with their tax advisers because the tax treatment of different types of loans, including allowable depreciation expenses, can vary.
How can business owners apply for equipment financing?
Applying for business equipment loans can be quick and easy. Credit unions and banks often have online applications. These applications can be completed and submitted online. Or business owners can visit or call their local credit union or bank for assistance in completing the application.
Bert Bryan is president of CU Business Capital LLC. Reach him at (954) 704-5426 or [email protected].