Guidelines to Select the Right Equipment Finance for Your Business

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.