There are a few options when it comes to financing new equipment. You can refinance an existing asset to get the capital. You can also tap into existing resources like credit lines if the machinery is within the line’s reach. Often, heavy equipment investments and vehicles require more capital than a credit line offers. In those cases, loans are often the best choice for equipment financing, especially if you are in the market for equipment that has a long operational lifespan.
Loans Reach a Return Faster
If you pay cash or use a credit line to handle the cost of equipment, you wind up needing to recoup the entire cost before you begin to see a profit. If the credit line is one used for general cash management, it can also make your outgoing cash flow tighter than it should be. Using a term loan means you only need to recover the cost of your down payment, then make more than the monthly payment every month. Whatever you make beyond that is additional income beyond the costs of your machine.
Lower Overhead in the Long Run
When you buy equipment instead of leasing it, you can count on using it well past the date when you stop paying for it. While the two might have a comparable month-to-month cost, that advantage is a big one because it means when you buy the right equipment and pay off your loan early, you maximize your income potential with that machine. It’s a simple matter to use equipment financing when you need an upgrade, then when that upgrade increases your income, use the profits to pay down the loan early and enjoy higher profits.
Equipment Assets Are Financial Resources
There’s nothing requiring you to use the equipment for its entire operating life. In fact, usually, your best advantage is to upgrade when you can still sell it. Even if you don’t, your equipment assets represent important financial resources you will not have if you just lease everything you need. They can be refinanced to get capital or sold via a leaseback program to fund your next round of upgrades. That can be a great way to get down payment money so your new equipment purchase does not need to tap your cash reserves. Finally, the old machines you are ready to get rid of can be sold directly to other companies to bring in cash when you need it, but only if you choose equipment financing over leasing.