ForConstructionPros.com

By Kenneth E. Bentsen, Jr.

Most small businesses require equipment in order to operate, but simply don’t have many funding options. Aside from internally generated cash flow or credit lines, businesses interested in acquiring equipment require other choices for financing their capital spending. Many finance companies, from commercial banks to manufacturers and smaller, more specialized commercial finance companies around the country, offer a variety of options for financing equipment and the key is knowing which options best suit your capital goods needs and your financial structure.

For a small- to mid-sized company, regardless of current economic and market conditions, financing the acquisition of equipment rather than using cash might offer significant benefits while mitigating risks. More importantly, how you finance should be the result of careful planning based upon many factors. There are several things to consider in searching for the financing option that best matches the needs of your company, including practicality, cost-effectiveness, type and use of equipment and cash flow and long-term capital and credit demands.

How can you determine which is best for your company? Factors to keep in mind include knowing the length of time for which the equipment is needed; your tax situation; cash flow; and your company’s future capital needs related to future growth.

Some of the benefits for financing equipment include:

1. Flexible financial solutions. The types of financing solutions equipment finance companies offer - especially leases - are flexible and can be tailored to specific accounting, tax or cash flow needs. They run the gamut from fair-market value (FMV) lease transactions and capped FMV leases to full payout loans.

2. Capital preservation. Preservation of capital is a consideration of most businesses that makes equipment financing an attractive option. Investing in large capital expenditures often represents big financial risk, especially for small companies. Financing versus spending cash, and particularly the type of financing employed (lease v. loan) can help mitigate the uncertainty of investing in a capital asset that might not yield the desired return, increase inefficiency, cost savings or future sales. For instance, lease payments can often be matched to the productivity the equipment produces.