Equipment is the foundation of every business, enabling it to provide its goods or services. As an owner, it’s on you to ensure that your business has all the equipment it needs to keep up with demand in the most efficient way possible.
So much of the decisions you make on what equipment to buy hinges on the finances available. Self-financing your equipment can seem like the safest option, but it can put a strain on cash flow or force you to buy cheaper goods that don’t serve employees and customers in a way that you’d hoped or promised.
What is business equipment finance?
Business equipment finance gives you the funds and the backing to purchase the equipment that your business requires to grow and evolve, helping you to keep up with demand without having to leave the company bank account looking dangerously light.
There are numerous ways to finance new assets – such as using a bank overdraft, business loan, or entering into a lease agreement. However, all mean that you can upgrade existing equipment or buy a new asset without needing high levels of working capital.
Benefits of business equipment financing
Equipment finance has numerous benefits, particularly for small businesses and those looking to take advantage of opportunities in the marketplace. The advantages of leasing include:
- Tax efficiency: Financing equipment can be more tax efficient; for example, with leasing, rentals can be 100% tax deductible against profits.
- Cost reduction: Financing with a lease agreement leads to reduced upfront costs, meaning that you can purchase and use assets immediately.
- Flexibility: Certain forms of equipment financing are very flexible and can help to spread the cost of investing in new equipment over time, meaning that payments can be tailored to support your cash flow needs.
- Fixed interest rates: With leasing agreements, interest rates are fixed for the duration of the contract, making it a cost-effective and budget-friendly financing choice.
What business equipment can be financed?
In terms of which business equipment can be financed, it depends on the lender. So, when looking for lenders, you need to research their risk appetite. Some will specialise in specific industries or sectors, while others might only offer equipment financing up to a certain amount.
Shire Leasing has the appetite to fund almost anything business-related, with a multitude of leasing options from hard assets such as plant machinery, or soft assets such as IT software. With an own book value of over £115m, and relationships with many funders, we have the ability to fund even the most unique business assets.
How widely used is business equipment financing?
Equipment financing can enable businesses to upgrade old machines and set them on a path for growth. However, only 16% of firms have opted to take out finance to fund new equipment, according to our own research from 2018.
The lack of businesses opting for funding to take this route could be due to any number of different reasons including a lack of awareness or a preference to ‘keep within their means’. But the implications of failing to upgrade equipment can be serious for a business, ranging from growth plans going unfulfilled to a struggle to remain competitive as new, equipment-rich players enter the market.
Are there any drawbacks with equipment finance?
Business equipment financing enables you to have the best equipment, when you need it. But, when borrowing funds of any kind, there is a degree of risk that needs to be factored in.
Firstly, if you fail to keep up with the payment amounts, you could be forced to hand the equipment back to the lender, which could be disastrous if you depend on it from an operational point of view.
However, both the interest rate and payment amounts can be fixed and agreed from the outset, allowing you to budget more effectively and reducing the likelihood of falling behind on repayments.
Secondly, if you choose equipment leasing, you are effectively paying for goods that you’ll never own outright (although there are finance options available that mean the asset is yours at the end of the agreement).
However, once one agreement has ended, there’s nothing stopping you from starting a new agreement on a brand new, upgraded piece of business equipment– so your business can continuously perform with a competitive edge, affordably.
What equipment finance agreement should you opt for?
Finding the best type of equipment funding all depends on your business and its objectives.
Shire offers a broad range of finance solutions, tailored to meet the needs of each individual business that we support. With a dedicated account management team and in-house underwriting, we can help you to decide the most suitable finance solution for your business.
To find out more or to discuss your equipment finance needs further, get in touch or give us a call on 01827 302 066.