Five Benefits of Equipment Financing for Start-Ups and Small Businesses

Small companies and start-ups can have trouble securing credit, but equipment financing can help them purchase the capital assets they need to grow.

May 3, 2013

2 Min Read
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Small companies and start-ups can have trouble securing credit, but equipment financing can help them acquire the capital assets they need to grow. 

Small or early-stage medical device companies and other start-ups often have a hard time securing the credit they need to purchase the equipment required to develop innovative products. Lenders often require two years of financial data, which start-ups just don't have. 

A more viable option for small companies and those just starting out could be equipment financing. Equipment financing offers the following benefits: 

  1. 100% financing with no down payment. This is a critical benefit because 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.
     

  2. Elimination of risk of ownership. Equipment financing can 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.
     

  3. 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.
     

  4. 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.
     

  5. Updated technology/obsolescence management. To stay on the cutting edge and remain competitive, businesses must have 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.

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, which includes financial services companies and manufacturers engaged in financing capital goods.  ELFA has been equipping business for success for more than 50 years.  

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