For many manufacturers, the costs of purchasing new equipment — or replacing equipment that has reached its end-of-life - can put a significant strain on their cash reserves, but at the same time, it’s a must if they want to stay competitive and maintain their growth.
Fortunately, that is where National Business Capital’s equipment financing for manufacturing enters the picture as a practical and affordable solution. Getting quick access to timely funds can often make the whole difference between a thriving and surviving business.
In this article, we will take a look at some of the main benefits of equipment financing for manufacturing - but first, let’s get into the details of what equipment financing really is:
What is Equipment Financing?
Equipment financing is a financing option offered by lenders that gives borrowers the opportunity to acquire physical assets, such as machinery, vehicles, or technology, that are necessary for their operations.
So, how does equipment financing work? As opposed to other types of loans, in which the business gets a lump sum or a revolving credit to cover expenses, equipment financing works a little bit differently.
The lender purchases the equipment on your behalf, and then you repay the total cost, plus interest, through regular monthly installments.
As a borrower, you are in charge of choosing the equipment to be bought by the lender, who then makes the purchase. Once the amount outlined in the contract has been paid, you can keep the equipment.
This is different from a lease agreement, in which you would have to return the equipment at the end of the term.
So, what exactly are the benefits of equipment financing for manufacturing? Let’s take a look:
7 Key Benefits of Equipment Financing for Manufacturing
1. Purchase Now vs. Later
One of the biggest benefits of equipment financing for manufacturing is that it gives you the opportunity to purchase your desired equipment now as opposed to saving up during months and years to make the purchase later.
This flexibility not only gives you a competitive advantage and enables faster and more efficient production, but it can also help you avoid the higher costs associated with outdated equipment.
In addition, immediate access to new equipment allows you to quickly respond to market demands or changes, adapting your production capabilities to meet evolving consumer needs or to capitalize on new market opportunities.
2. Hedge Against Inflation
Another key benefit of equipment financing for manufacturing is that it works as a hedge against inflation. By purchasing assets now, you lock in at today’s price. Waiting months or years likely means that the price will rise due to inflation and/or increased marketplace demand.
On top of that, most equipment loans come with fixed interest rates, meaning the monthly payments remain constant throughout the term of the loan.
As inflation rises, these fixed payments become relatively cheaper in terms of purchasing power, making the cost of financing more affordable for you as a borrower over time.
Equipment financing for manufacturing also allows you to increase your production capacity and open new revenue streams, effectively outpacing the fixed loan payments - especially in an inflationary period when prices and potential revenues are rising.
3. Flexibility
Speaking of the benefits of equipment financing for manufacturing, we can’t forget to mention the flexibility that comes with this type of financing.
You can customize the funding to align with your specific needs, such as cash flow requirements, tax planning, expense planning, and accounting strategy (e.g. off-balance sheet financing, improved reporting earnings, increased return on assets, etc.).
In other words, financing agreements can be tailored to match your cash flow. This means payments can be adjusted seasonally, quarterly, or annually to align with when you expect to have more liquidity.
4. Reduce Risk
Even if you have the capital on hand to purchase new equipment, it may make strategic sense to preserve it instead of spending it.
Especially if you have some concerns that the equipment in question may not deliver a short path to ROI, equipment financing may be the answer. In addition, financing equipment with predictable monthly payments helps maintain stable cash flow.
This financial predictability is crucial for effective budgeting and financial planning, reducing the risk of cash shortages that can impact operations or growth initiatives.
5. Increase Competitive Advantage
Increased competitive advantage is among the most important benefits that you can capitalize on when it comes to equipment financing for manufacturing. It allows you to:
Get access to advanced technology to improve production efficiency
Scale your operations up or down more fluidly in response to market demands
Leverage the energy efficiency and lower operating costs that come with modern equipment
Reduce downtime and the costs associated with it thanks to newer equipment being more reliable and requiring less maintenance
Respond rapidly to market changes, new trends, and technological advancements
Avoid large upfront investments, preserving your capital for other strategic uses
The equipment you purchase can be used to increase your competitive advantages, which will translate into a more valuable brand, along with more customers, sales and profits.
Conversely, not purchasing the equipment could erode your competitive advantage and damage your brand.
6. Greater Purchasing Power
Equipment financing for manufacturing also gives you more purchasing power, which you can leverage to negotiate a lower price and/or a more favorable agreement with suppliers and manufacturers.
With the immediate capital available through equipment financing, businesses can afford to make bulk purchases, which often qualify for discounts or more favorable terms. This ability to buy in larger quantities can significantly reduce the per-unit cost of equipment.
7. Tax Advantages
Finance payments are tax-deductible, and you will be able to depreciate the equipment (how fast you can depreciate and the amount depends on a variety of factors, including the type of equipment, when it is purchased, and so on).
For equipment loans, the interest paid on the loan can often be deducted as a business expense on your tax return, lowering the taxable income and, thus, the amount of tax owed.
In some tax years, you may also qualify for bonus depreciation, which allows you to deduct an additional percentage of the equipment cost in the first year, on top of the standard depreciation deduction.
This accelerates the tax benefits, reducing taxable income even further - allowing you to continue leveraging the benefits of equipment financing for manufacturing for years to come.
You do not need to have several years of operational history — a few months is typically all we require. What’s more, it is fine if you have impaired or bad credit (business and/or personal).
We are much more interested in what you are doing today and what you have planned for your successful future than we are about what may have transpired in the past.
Applying for Equipment Financing for Manufacturing
If you are looking to leverage the benefits of equipment financing for manufacturing, look no further than National Business Capital. With a single application, you can get access to dozens of exclusive offers from our diverse lender platform, so you can make the best decision for your business.
With $2+ billion financed since 2007, multiple awards, and an experienced team of Business Finance Advisors, we have everything you need to find the best financing options for your project.
Are you ready to get started? Apply here.
FAQ
What types of equipment can be financed?
A wide range of equipment can be financed, including manufacturing machinery, vehicles, construction equipment, office technology and computers, medical and dental equipment, restaurant and kitchen appliances, and software.
Essentially, most tangible assets and certain intangible assets used for business operations qualify for equipment financing.
How much can I borrow through equipment financing?
The amount you can borrow through equipment financing typically depends on the value of the equipment, your business's financial health, and creditworthiness. Generally, it's possible to finance up to 100% of the equipment's cost, though terms can vary by lender.
What are the repayment terms of equipment financing for manufacturing?
Equipment financing for manufacturing typically offers repayment terms ranging from 1 to 7 years, depending on the lender, the type of equipment, and its expected life span. Some lenders may offer more extended periods for substantial investments.
Payments can be structured to match the business's cash flow, with options for monthly, quarterly, or even seasonal schedules.
Do I need to provide a down payment?
Whether a down payment is required for equipment financing can vary by lender and the specific terms of the loan. Some lenders may finance 100% of the equipment cost, while others could require a down payment, typically ranging from 10% to 20% of the equipment's purchase price.
What are the requirements of equipment financing for manufacturing?
Equipment financing for manufacturing generally requires a solid business credit history, a minimum credit score (often around 600 or higher), detailed financial records, and proof of stable business operations.
Lenders may also assess the equipment's value and lifespan, and some might request a down payment or collateral. Additionally, a clear business plan demonstrating how the equipment will enhance operations or profitability can be beneficial.
ABOUT THE AUTHOR
Joseph Camberato
Founder & CEO
Joe Camberato is the CEO and Founder of National Business Capital. Beginning in 2007 out of a spare bedroom, Joe and his team have financed $2+ billion for businesses nationwide. He’s made it his calling to deliver the educational and financial resources businesses need to thrive.
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