With the economic uncertainty of the future weighing in on the forefront for many small businesses, available cash flow is going to become more of a necessity than an option. What will stay certain is the need for businesses to gain access to funds for inventory, hiring personnel, or obtaining equipment to stay solvent and/or scale.
A common theme we have discovered over the last several months of the pandemic is business owners wanting to pay cash for their equipment. The question becomes, “why pay cash, when you can access the benefits of financing and let the equipment pay for itself?”
It’s like the consumer who has $25,000 ready to purchase a new car in cash but for a new $50,000 truck, will consider financing. Business equipment works the same way…
Whether you need heavy construction, medical, IT, or office equipment — using an influx of your cash flow to pay for equipment is not the best option. Yeah, you would have no payments for years to come but think about where else you could use your cash right now or saving it for unexpected expenses while your equipment is on lease paying for itself.
A soil and mulch company we funded back in June for a new grinder was initially hesitant on the operating lease we had them approved for over 36 months. With a couple of perspective shifts, the client saw the benefit in writing off ALL lease payments as a business expense while letting the grinder 3x their monthly production and fulfill more contracts. The business was lightly capitalized being a startup, but the excess cash flow they did have available did not all go to one piece of equipment.
Let’s look closer to the benefits of securing a lease vs. using your own cash to pay the hefty sum for equipment…
- You are not committed to owning the equipment (although you have that option). Say you fulfilled a 36-month operating lease and you want to return the existing equipment to try out a new piece of equipment, you can.
- Helps business owners stay on top of costs while getting familiar with new technology or the newest equipment on the market, beating other organizations to the chase.
- The Section 179 Tax Provision allows companies to deduct up to as much as $500,000 for qualified new and used equipment. (consult with your CPA)
- Repairs can be covered. When investing fully in new business equipment, if something goes haywire with the equipment, companies must pay for repairs or replacements entirely on their own. Equipment financing lenders can take the burden of some of these costs, helping companies remedy equipment problems sooner rather than later. This way, businesses don’t have to spend exorbitant amounts of money or time trying to get back on track with operations.
As 2020 progresses and we go into 2021, focus on increasing profitability as much as possible with an eye to the future. Letting your equipment pay for itself while providing the business with a healthy ROI is just one great way to stay ahead of the curve in an uncertain economy.