Advantages of Machinery Financing
Businesses require equipment to operate. Machinery financing helps construction companies obtain the items necessary to run smoothly, complete building projects and gain revenue.
Funding the purchase of equipment instead of paying cash has significant benefits for contractors. Deciding which type of finance solution to use depends on many factors. Consider the type and use of items needed, cost-effectiveness, cash flow and credit demands.
Most owners consider capital preservation an attractive benefit of loans. Purchasing machinery outright puts a strain on your cash flow. Investing cash in large expenditures also comes with significant financial risks. Financing helps mitigate the uncertainty of investing money upfront.
Maintaining cash flow is another perk. It enables even expense planning and consistent budgeting. Equipment loans and leases often have tax benefits as well. A loan allows a company to lock in a payment schedule for the expected life of the items.
Financial institutions tailor options to a business’s specific needs. Some leases allow for seasonal fluctuations and other circumstances particular to the company’s industry. Construction operations benefit by updating equipment to be competitive with the latest technology. By funding through term lending, a project can acquire items it couldn’t otherwise afford.
This type of financing has many benefits, including:
- The company retains capital to use for projects and operations.
- The leasing company takes on the maintenance costs, which can be expensive with heavy machinery.
- Budgeted payments allow a business to grow efficiently.
Many financial institutions offer asset management programs, which provide a valuable benefit to companies.
Purchases involve risk. Machinery financing removes many unnecessary risks allowing a contractor to focus on running the organization.
Rates and Terms
Rates and terms vary depending on the owner’s qualifications and the current market conditions.
Finance sources include traditional lenders, specialized online lenders, invoice factoring and more.
Traditional banks typically have strict underwriting requirements but favorable rates and terms. Established businesses with strong cash flow are likely to qualify for this type of funding.
Specialized online lenders are flexible with underwriting requirements, but rates and terms are not as good. Startups or owners with low credit scores might choose this option.
Invoice factoring, business credit cards or private investors are other options contractors can consider for machinery financing. The best option depends on a business’s qualifications and the loan type that best suits its needs.