Newcastle Innovation Minerals

Financing Equipment Purchase

To be able to carry out productive activities, you need a wide array of tools and equipment. However, these tools and equipment are never free. You have to pay money to secure them. A lot of them can be quite expensive. Thus, the need for you to put proper thoughts into equipment financing.

Equipment finance can be seen as the process of getting funding for the purchase of equipment, machinery, and other tools needed for production activities. Mostly, there are two major alternatives from which you can choose when it comes to securing funding to acquire equipment. These are direct cash purchases and via loan or credit.

Both of these systems possess their benefits and downsides. But first, we discuss the upsides.

Direct Purchase

This involves committing the funds to purchase the equipment straight up without taking any significant credit.

Benefits of Cash Payments for Equipment Finance

If you acquire your equipment through direct cash payment, include the following:

Permanent Ownership

If the equipment or machinery is acquired via direct cash payments, it means you are the owner of the machinery for life.

As a result, you can commit the machinery to any purposes that you may desire without having any second thoughts or fears.

Freedom to Engage in Productive Activities

Acquiring the equipment or machinery by direct payment will give you access to a lot of freedom, especially financial freedom. You will be free from significant psychological, mental, and financial strain. Since the machine is meant for business, you can commit your time and efforts and resources to deliver top-quality to customers and develop the business.

On the other hand, that is far from the case if you go the route of acquiring equipment via credit. In the case of credit facilities, you need to commit to laying interests very regularly. Mostly, most creditors might not give you favourable default policies.

Thus, you have to be committing a good amount of the company’s revenue to pay back the credit, including even when you don’t make a profit in the business. This may detract you from focusing squarely on business activities and serving the customers optimally.

Income-Generating Potentials

Acquiring your equipment without credit financing can set you up for some income-generating opportunity. The equipment is yours, and you can commit it as you wish. One of the things you can use it for is to lease out for a fee to businesses in the same industry as yours but who don’t own the particular equipment. This can bring consistent but residual rental income.

The equipment can generate even more cash in the future. If, after using it for a while, you desire to sell it, you can also generate cash from that.

Assets for the Business

One thing big business have that small business don’t have are assets. Assets help your company generate income when they are used for productive activities. Furthermore, we help to influence and boost the business’s valuation, especially if it is a private one.

Credit Financing

This essentially involves not paying for the equipment now but much later due to a credit facility. Credit financing for your business equipment can happen in various ways. One, you can take a loan from a financial institution to acquire the equipment. Or the equipment sellers can allow you to pay in instalments. Either way, it has a lot of benefits. 

Benefits of Credit Financing

This features some benefits, much more than you think.

Ability to Pay Over the Long-term 

As you know, the costs of acquiring the most equipment are quite high and somewhat expensive. It can be quite difficult to commit the costs upfront. Thus taking a longer-term credit facility can be a brilliant option.

Cheap Borrowing

The borrowing rate for these types of acquisitions is somewhat low, thus enabling you to borrow cheaply and pay minimal costs.