Choosing the right
equipment for any business plays a crucial role in the productivity and
profitability of a business venture. To make sure that the cash flows are
sustained and the financial health of the company remains robust, choosing the
right type of equipment finance becomes imperative. This helps a business
whether an established venture or a start-up to fund purchases of various types
of equipment without any negative impact on the cash flow.
Many businesses do
not have enough available cash credit to be able to pay a lump sum amount
outright for their equipment. It, therefore, becomes a necessity to opt for flexible
equipment financing.
Also, even if one
can afford such exorbitant business equipment purchases, it makes sense if a
business puts its working capital to more profitable use by not investing the
cash in capital assets. The working capital can instead be used to fund
operations and explore new growth opportunities.
Here are a few
guidelines to help you select the right equipment finance for your business:
·
Check if
commercial hire purchase makes sense: This option
involves the credit provider or the lender hiring out the equipment for a
defined amount of period to the business owner. The ownership of the equipment
is then transferred to the business once the loan is repaid. After the final
instalment, the equipment becomes an asset for your business. This option
allows for a monthly payment to be made and helps ease out the cash flow
management.
·
Also,
check if equipment rental works: In this case, the credit provider or
the lender purchases equipment on your behalf, retaining the ownership, and
rents the equipment back to you for a fixed term. The financial flexibility
that comes with this finance equipment option helps you regulate cash
repayments. These would be in sync with your current cash flow. You will also
be able to claim tax deductions.
· Industry
oriented equipment finance is a good option: Make sure that you stick to a particular industry
specific equipment financing. The credit lenders pertaining to a particular
industry will have hands-on domain expertise and knowledge of particular industry
equipment. For instance, if you run a delivery business, the credit lenders who
have years of experience working with the delivery services may ensure that you
do not pay a lump sum amount for all the equipment but rather buy them on a
staggered basis.
· Understand
the tax implications: You must figure out if it makes better
sense to buy the equipment and show it as an asset on the balance sheet or is
it better to rent the equipment. You must weigh the pros and cons of the tax
implications of your chosen financing option.
·
Calculate
the financial implications of the equipment on your accounts: Vehicles,
computers and other technical equipment will tend to have a higher depreciation
rate as compared to heavy manufacturing equipment and plant machinery. Certain
types of equipment have a limited shelf life and need to be periodically
replaced. Know the ins and outs of the equipment required so you can get a good
financing option.
· Don’t
discount alternative financing options: If the existing
equipment finance options are becoming too much of a financial liability, look
for alternative sources of equipment financing that offers lower interest rates
or an affordable repayment period.
Seek
expert assistance: In the case of small and medium businesses,
one can take assistance from commercial financial brokers. These brokers can
help find the right equipment finance and also help do the paperwork on your
behalf. Since they deal with the world of finance on a regular basis, you can
also tap them for their expertise.
