Commercial equipment financing allows business owners to obtain the necessary materials to either start or expand an operation. Few businesses have the cash to purchase necessary equipment, particularly heavy machinery, outright. In fact, most businesses operate on a cycle of debt. This allows them to purchase the materials they need to build profits and make sales then pay off the materials with the profits from sales. It is a commonly accepted practice to seek a commercial equipment loan in order to finance your business.
Expand Profits
The main benefit to seeking a commercial equipment loan is to expand your profits into a new area. For example, a construction company that would like to take on more jobs at once needs to have more than one set of equipment. Construction equipment for a new job may be totally paid for once the job is complete, but the company will need to finance the equipment just to complete the first job. Most businesses wait until they have reasonable belief they will immediately receive new profits from their financed equipment before electing to purchase it. However, it is also possible to finance commercial equipment when you are starting a business and taking a greater risk. Greater risk will result in higher interest payments on the loans, but most businesses need this help to get off the ground. You may consider leasing equipment in the beginning if you do not want to take on too much debt. Leasing, however, will prevent you from obtaining the other benefits listed below.
Grow Business Assets
Similar to purchasing a car or home, purchasing business equipment builds up a company's financial assets and equity. There are a number of reasons a business needs assets to prosper. First, assets are used to finance greater purchases in the future. A business is not likely to get loans without having assets on the balance sheet; this is especially true of funds coming from private investors. Investors often ask for a share of assets in lieu of an interest rate, and this means your business will need assets to share to secure investor-financing.
Another reason businesses purchase equipment is to build assets that increase the value of the company. If you decide to take your company public or sell your company down the line, the new purchaser will pay you for the assets you have, not just for your clients.
Build Business Credit
Businesses need credit just like households do. When you first start a business, you will be required to provide your personal financial information and assets in order to secure financing or attract investors. Once the business is in good standing, however, you will want to remove yourself personally from its financial operations. This will protect you both from liability and from bankruptcy if the business ever goes bankrupt. The business needs to start building its own credit so you can take a step back personally. This only happens when the business itself takes out and pays off loans.