Business loans can be a great approach to seize opportunities that come up as you grow your business. There are many types of small business loans, but this article will focus on equipment loans, which are a staple for many small businesses, especially in their early stages.
Here is an example, using two different financial advisory companies: Leverage Inc. and No Debt Solutions LLC. Their profits are similar: around $20,000 per month. They each have the opportunity to buy a printing press, costing $240,000, which would help them cater to a more mature audience. In addition to delivering their advisories online, they would now be able to roll out a printed version, enabling them to double their profits.
No Debt Solutions LLC decides to save its monthly profits and purchase the printing press during the next financial year. Leverage Inc. takes an equipment loan and purchases the press right away.
At the end of the year, No Debt Solutions LLC has $240,000 in the bank, but the price of the press is now $280,000. No Debt will now have to save for an additional two months before purchasing it. Leverage Inc., on the other hand, has been earning $40,000 a month since it added the new press. After taking into consideration the loan payment of $8,000 per month, we can see that they still earned $12,000 more than No Debt for each month they have had the printing press. Leverage Inc. now has $384,000 in the bank.
Which business is better off?
Acquiring equipment that can expand your business offering is naturally a no-brainer for financing. Make sure you’re dividing the real needs from the nice-to-haves before you take out an equipment loan, as it can have a significant impact on your bottom line. Your employees would probably love an espresso machine, but unless you’re running a coffee shop, this is not your company’s best investment.
The right equipment at the right time can be fundamental to your success if you want to be competitive in your business. There are numerous ways you can go about getting money for this all-important equipment. An equipment loan is an option that will give you almost immediate access to finance just about any kind of machinery or vehicle needed for your business.
One of the main challenges of maintaining a business is ensuring you have adequate cash flow to establish and run it. An equipment loan offers extra buying power that can be used to develop your business.
An equipment loan also keeps your company in a good cash flow position, enabling you to handle unforeseen expenses without affecting your business operations. You saw from the example how Leverage LLC’s printing press virtually paid back for itself, since it doubled profits, putting the company in an even better position than it was before.
Used equipment is often a good buy, and can save you thousands of dollars. An equipment loan can help you afford quality equipment, used or new, instead of outdated castoffs that will break down all the time. You may even have to delay purchasing equipment if you opt to forego the loan, which, as you can see in the above example, can really slow down your revenue.
Here are some of the available options for equipment financing:
- Secured Equipment Loan: The equipment is pledged as collateral for the loan
- Finance Lease: Another firm or individual investor purchases the equipment, but you pay for the right to use it
- Synthetic Lease: This option is similar to a regular term loan, with a balloon payment at the end of the lease
In business, it’s important to ensure that all your computers and other equipment are up to date. This costs money, and it’s likely that you will need financing. We hope that the information in this article will help you navigate the available options as you seek financing to purchase needed equipment.
Ensure that you do your homework so you understand exactly what you’re signing up for. As you review your options for equipment financing, keep in mind that lenders may not fund 100 percent of the cost of the machinery you want to buy. It’s therefore, important to know your financier’s terms and conditions beforehand.
Lendio is a great resource for putting financiers and borrowers together – you just have to answer a few questions, and they will give you equipment financing options based on your responses to these questions. See a list of business loans available for some other business financing options that will help grow your business. Access to sufficient funds should never stand in the way of the development of your business.