“Most people don’t plan to fail; they fail to plan” – John J. Beckley.
While no entrepreneur goes into business with a mindset to fail, inadequate access to financing options is an enormous contributor to its lack of success, leading to its ultimate failure. A business depends heavily on its ability to sell products and services, get invoices raised for payments, meet obligations to restock inventories, and expand and scale the business. Within this interdependent chain of business, some factors challenge the ability to meet future commitments and lead to business failure. Business owners, who understand the root cause of the problem concerning the lack of financial capital, find alternatives to traditional funding, including business loans.
Role of the right equipment in businesses
In any business, using the right equipment(s) can improve processes, productivity, and capacity to innovate. Without the right equipment, you are setting up your business for failure.
Before investing in equipment, it is essential to consider whether you are looking at increasing productivity, if the equipment would give you an edge over competitors and whether upgrading instead of buying new equipment would lead to better business performance. Invest if convinced that the returns justify the cost of the equipment.
Buy v/s Lease Decision
Once you are convinced of the utility of the equipment, it is necessary to consider whether to buy them at once or to rent them. Purchasing enables you to own the equipment as soon as the transaction is completed. The company amortizes the cost over many years, which effectively represents the lifespan of the equipment. It is also possible to get financing for more than the purchase price.
On the other hand, leasing or renting options may be appropriate for equipment that quickly turns obsolete or is needed for a specific project. Leasing can make payments lower than they would be if you purchased the equipment, and it can also give you the latest technology, which you may or may not have funds to buy for. While you do not own the equipment during the lease tenure, some lease agreements provide an option to purchase it and make it your own asset at the end of the contract. The price you pay at the end of the contract may be lower than the initial purchase price. Depending on the lease structure and type, your payments could be included as part of your operating costs.
The financial structure of companies varies greatly depending on their maturity. Sometimes, there could be a shortage of funds, which is where a construction equipment loan can ensure that the necessary money is available up front. Equipment finance can also be accessed without accruing too much interest since interest rates could be locked up front.
Benefit from the equipment before paying the entire cost of the asset.
With equipment financing, you can start to reap the benefits of the asset without investing the capital upfront. By spreading out your payments over equated monthly installments for a longer tenure, the investment impact is minimized on your balance sheet.
Better Financial Management.
Equipment finance offers predictability with monthly payments, which allows you to better plan and manage the company’s finances. Moreover, at Tata Capital, we customize equipment financing loans to suit your business requirements, ensuring the outflows are comfortable across the loan tenure.
Faster loan processing.
Obtaining capital through equipment financing options is quick, enabling you to make and implement critical equipment decisions faster. This speed of implementation leads to the timely installation of the assets and fast-paced business and revenue growth.
Tax-efficient.
When you make monthly payments, it leads to a better tax efficiency than purchasing the equipment upfront because it becomes an operational expenditure rather than an asset that sits on a balance sheet when a purchase is made outright.
Business Growth.
Equipment financing is as vital as ever since it enables businesses to procure necessary assets while fulfilling operational and financial aspirations. Equipment financing may turn out to be a key strategy for the growth of a company. It enables possession of up-to-date and efficient machinery and removes pain points emerging from obsolete inventory and resulting inefficiencies.
Equipment financing can even prove to be a great tool against inflation. Instead of paying the total cost of equipment up front or with a sizeable down payment in cash, the stream of payments in shorter sums delays the outlay of funds at present financing costs.
So, plan your business growth effectively and finance your construction equipment on the most competitive terms to succeed in the long run. Reach out to our construction equipment finance experts if you need further guidance on funding your equipment the right way.
11 February 2021
5 mins read
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