Equipment Financing for Small Businesses

By Joe Mancini | Published: October 2020

For many small businesses, surviving today’s economic uncertainty means that being conservative with working capital is a necessity. Some can get by with hiring freezes or finding ways to cut down on operational costs. For those who need to purchase or upgrade expensive equipment to remain competitive, however, cutting down on costs may not be enough.

Financing is a way for small businesses to purchase essential equipment while not stressing credit lines, depleting cash, or disrupting working capital. In fact, a small company can make a profit by implementing the equipment or technology immediately and grow its business.

Advantages for New Businesses and Startups
One of the largest barriers to entry for new businesses and startups is the initial cost of equipment and technology. Sure, there are other fees and charges that rack up costs in the early stages of starting a business, but potentially needing tens of thousands of dollars to purchase the necessary equipment to begin operations is incredibly difficult to overcome. That’s excluding any potential upcoming costs like upgrading that equipment or purchasing more to increase production. That’s where equipment financing comes in.

When new businesses choose to finance their equipment, they’re significantly lowering that barrier to entry and replacing it with more manageable payments that fit their budget. Financing also helps them preserve working capital to fund the regular day-to-day operations so that new businesses don’t have to use funds that were set aside for working capital to purchase the equipment necessary to start their business.

New businesses and startups can apply for financing programs especially designed for those that have been in business for under a year. A small business owner can ask his or her vendor or equipment finance company of choice about these programs.

Advantages for Established Small Businesses
Although more established small businesses may not be concerned about entry costs like new businesses are, they can still benefit from equipment financing to cut costs and conserve working capital. Because resources are less readily available than their larger, more corporate counterparts, that also means that they are less likely to have the cash on hand needed to purchase the equipment their business needs.

If they want to expand their product offerings, improve efficiency, or upgrade equipment without financing, they’ll have to save funds over an extended period of time, for potentially months or years, to purchase the necessary equipment. Any future large equipment purchase will also have to follow that same process. This wait can be debilitating for businesses that need new equipment to grow their business.

Equipment financing eliminates that wait and gives established small businesses the ability to obtain equipment when they need it rather than wait until they can afford the full price purchase. This severely reduces the time between large purchases, which can help rapidly increase their cash flow. Additionally, some equipment finance companies allow for seasonal payments, making it easy to adjust payment structures to varied income.