Very few small businesses are in a position where they can fork over the full cost of pricey equipment all at once. It’s stressful to pay $5,000 one time at the cost of struggling to make ends meet for several months. That’s why offering equipment financing to your customers is important – it gives them an easier, less stressful way to pay for what they need.
But the idea of equipment financing can sound stressful, too. All those payments? All that interest? Ultimately, financing isn’t an end-all, cure-all when it comes to your customers’ finances, but when they use it correctly, it can help to maximize what they get out of their business. Want to know what we think the benefits of equipment financing are for your customers? Go ahead, keep reading.
Maximize Cash Flow
What does it truly mean to maximize cash flow? There are so many variables when it comes to using working capital and revenue, but equipment financing can be a step for your customers to take toward that financial nirvana of “maximizing cash flow.”
PNC Bank says this is the “most attractive benefit of leasing,” and we have to say we agree. Leasing and financing let your customers keep their cash coming in and still benefit from the equipment they need. If they spread out a large purchase into several smaller payments, it gives their company room to grow from the purchase, and not suffer from a large, one-time payment. By offering equipment financing, you give them the opportunity to use their cash flow more wisely.
Say they’re grossing $10,000 per month from their business, but they need a piece of equipment for $10,000. If they use that entire month’s earnings to purchase it up front, it would set them behind on several other bills and expenditures. If they’re able to split that purchase into 24 payments of $417 (plus interest, of course, which will vary by lender and financial history), it keeps their cash flow open for other opportunities. They won’t have to stress about catching back up to the money they spent all at once. It also gives them a way to plan for the expense as opposed to just roughing it, and that can help make their cash flow more manageable.
Tax Incentives via Equipment Financing
That’s right, the government likes it when customers finance. Payments could be tax-deductible, and could be written off as an operating expense under the Financial Accounting Service Board’s (FASB) Statement 13. FASB 13 establishes what qualifies as an operating lease, and you can read more about if the leases you offer would qualify here. With this, you’re able to offer your customers tax credit for financing equipment, which is great news for them.
(Make sure you always advise they consult their accountant or tax professional when it comes to tax decisions, though).
Conservation of Capital
Offering your customers equipment financing will give them the opportunity to conserve their capital. Financing conserves existing capital for other payments, and doesn’t use up space on a credit card or line of credit. That means all these resources are reserved for other expenses or emergencies. Even if they have the existing cash to purchase a large piece of equipment, that cash could be better spent on another investment, or saved for an unexpected emergency purchase.
This is good for you and your customers. Equipment financing tends to be a faster way to fund purchases than a loan or line of credit, especially if they’re applying online through the lending marketplace. They can get approved for a maximum amount in minutes, which helps them get what they need faster, and helps you close deals quicker.
And perhaps one of the most important reasons to get any type of financing is that it helps your customers build their business credit. Unlike personal credit, business credit doesn’t acquire automatically – your customers have to personally report their credit to a business credit agency. So, if they’re not financing anything, they don’t have anything to report and they’re not building business credit. This can be a problem for them later on.
Let your customers know if they can separate their personal and business funds, it will be easier in the future to get a loan on behalf of their business. If they make their payments on time, using equipment financing to build their business credit can give them a better chance to get a lower-interest loan in the future, or refinance for a lower interest rate.
Book a Demo
Looking to offer equipment financing? FaaStrak has you covered. We offer the best financing options available for your customers, instantly. Book a demo below, and let us show you what we can do.