The innovation, agility and hard work of entrepreneurial startups and small businesses are precisely what the U.S. economy needs to get moving again. However, their nature of being newer, less capitalized or less established creates a catch-22 that impedes their ability to secure the credit they need. They do have options, though.
A wide variety of leasing and other financing methods are available through companies that offer special programs for startups. This is a particularly good time to finance equipment because there is so much liquidity in the marketplace. Leasing companies and banks are looking to lend because they have the cash available to deploy.
Key Benefits for Unique Business Needs
The following are among the most compelling benefits for the financial and operational needs of startups and small businesses:
100 percent financing with no down payment. Unlike with most traditional lenders, it is possible to arrange 100 percent financing of equipment with no down payment. This is a critical benefit since cash flow is often a concern for small and new businesses. Holding on to cash, or working capital, enables it to be used for other areas of the business, such as expansion, improvements, marketing or R&D.
Eliminating risk of ownership. A business just starting out can use equipment financing to help mitigate the uncertainty of investing in a capital asset until it achieves a desired return, increases efficiency, saves costs or meets other business objectives.
Expense planning for cash flow and business cycle fluctuations. Financing equipment helps maintain cash flow and greater certainty in budgeting by setting customized rent payments to match cash flow and even seasonal cash flows.
Meet the business’s equipment needs. Leasing, loans or other financing enables businesses to acquire more and better equipment than they could have without financing. It is more feasible to make monthly payments than to make large cash outlays for equipment up front.
Updated technology/Obsolescence management. To be on the cutting edge and be competitive, businesses need access to new technology. Certain leasing finance programs allow for technology upgrades and/or replacements within the term of the lease contract.Also, since the lessor owns the equipment, it bears the risk of the equipment becoming obsolete.
Many financing companies provide asset management services that track the status of equipment, know when to upgrade or update it, and provide services relating to installation, use, maintenance, de-installation and disposal of the equipment. Equipment disposal, particularly of computers and IT equipment, can prevent end users from incurring legal penalties for improperly disposing of such assets, which are often regulated by federal, state and local governments. Equipment management by a third party, such as an equipment financing company, can enhance the ability of a business to focus on its core operations. Equipment financing can even hedge against inflation because instead of paying the total cost of equipment up front or with a large down payment in today’s dollars, the stream of payments delays the outlay of funds.
William G. Sutton, CAE, is president and CEO of the Equipment Leasing and Finance Association, the trade association that represents companies in the $725 billion equipment finance sector.