Equipment financing is still the best option when buying equipment for companies and small businesses. It protects the working capital you have in the bank and also protects your bank line from becoming depleted. Why is this so important? The number one reason for businesses, which are less than five years old, closing their doors is they simply run out of capital before their product has had a chance to succeed. Many small companies put so much effort into designing their widget, organizing how to produce it and developing their marketing strategy but as they expand their capabilities, they sometimes add equipment recklessly without thinking of their budget. It's like building the perfect ship, checking the weather conditions but not storing enough food supplies for the entire voyage.
Why do some small businesses resist financing their capital assets? They do not want to pay interest expenses! Poor excuse for paying everything out-of-pocket. You pay interest on your credit line and you will pay more if the market rate fluctuates up but you do not want to pay a fixed rate for three years which guarantees you against inflation? That does not make sense. If you run out of capital and your business starts to perform poorly, you local bank is not going to keep your business line open. They simply are not in business with you and can not afford the risk. The types of rates risky businesses pay third parties lenders for capital is not a position you want to be forced into. Those double-digit rates will really deter making a comeback quickly.
Consider these key reasons to finance your next purchase:
1) Protect your cash and business credit line. Emergencies will happen and also opportunities; make sure you have enough capital to cover yourself in each situation. Overall, it's better to finance equipment than to finance money.
2) Protect yourself against inflation. Lock your payments and interest today to guard against what the economy will do tomorrow or the next year. If inflation goes on its normal cycle, you will not be affected and will have the cash to deal with the potential downturns.
3) Build your business credit profile. As you successfully complete each finance, your company will build positive points towards its' overall credit profile. This value is reflected each time a new vendor checks your credit and offers you the most favorable terms. Also, each new finance will be approved more quickly and at the best rates.
Business cash flow is critical to a healthy enterprise; as cash flow and sales frequently slows; many companies scramble to make up the difference and if it extends too long, then something dramatic has to happen. Borrowing money when you do not have money is not favorable for company just as it is not for an individual. The best guard is to protect those assets in a ratio which is appropriate for your operation. Equipment financing is still a great option to build operating and financial stability for your company in the long run.