Small Business Equipment Financing


In this discussion will focus on issues as relates to small business equipment financing. In one of our previous discussions pertaining to business loans, small business equipment financing is one of the methodologies that you can use in order to acquire specific pieces of equipment and as it relates to your ongoing business operations. In the specific article or the focus on the issues that pertain to obtain equipment finance as it relates to the ongoing acquisition of equipment as it pertains to your business operations. In many of our subsequent articles, we will focus on leasing issues and how you can effectively use off balance sheet financing in regards to your ongoing equipment purchasing and usage needs. However, again, the specific article will focus on obtaining specific finance for the acquisition of new equipment as it relates to your business.

 

The nature of equipment finance has changed substantially in the past 10 years in that a number of the manufacturers actually produce the credit that you're seeking to purchase the equipment financing that is necessary in order to acquire these specific tangible assets for your business. Many major manufacturers, over this timeframe, have developed a number of different financing arms that allow you to effectively acquire the equipment you need some new manufacturer directly. However, is not always the case as it relates to equipment finance. Many banks, traditional lending decisions, finance companies, and specialty equipment finance firms have developed a number of different programs that you can use as it pertains to your ongoing need for equipment for your business. As we discussed earlier, one of the more popular ways of financing equipment is through a leasing program so that the capital that is required in order to receive the new machinery for your business does not directly appear on your balance sheet. However, this is starting to change as the GAAP rules have become more stringent in regards to the ongoing capital leases as it relates to the acquisition of new equipment for your business. As always, if any of the terminology relating to equipment finance for equipment financing/leasing seems foreign to you, then you should always consult with a certified public accountant in regards to the potential methods of financing are in your best interest as it relates to the ongoing acquisition of machinery and other pieces of equipment you need to conduct your business operations.

 

In returning to our primary focus, as relates to small business equipment finance, the first decision we need to have as it pertains to the acquisition of new equipment is whether or not to lease or purchase the specific piece of machinery that you're seeking. In many instances, it will be in your best interest to lease equipment as machinery quickly becomes outdated given the pace at which new technology enters the market. For example, if you were to use a corporate finance to purchase a new computer for your business then that specific computer will quickly become outdated as you progress through the operations simply due to the fact that technology companies quickly develop new software, hardware, and other aspects of the event that you use in regards to your technological infrastructure. Similarly, the same example holds true for anyone is  acquiring new piece of equipment as it relates to conducting your business. The advent of the Internet has allowed technology and a equipment to become much more depreciable at a faster pace than it did two decades ago. As such, the direct acquisition of new pieces of machinery from the small business equipment financing that you are seeking may not be in your best interest for you simply due to the fact he will need to update your equipment on a regular basis given the pace on which technology advances. However, in some certain instances the direct acquisition of equipment, via a corporate finance, maybe in your best interest so that you're able to effectively build a substantial tangible asset base as you course through the development of your business. This is especially true for certain pieces of machinery that cannot become outdated quickly. For instance, if you run a printing press business, which is an older method of conducting business operations as a relates to printing, it may be in your best interest to correctly acquire this piece of property so that you can continue to build your candle acetates as it relates to your balance sheet.

 

As it relates to small business equipment financing, the things they should be immediately aware of is the rate at which the equipment that you are seeking to acquire will depreciate over its useful life. This is a very technical form of accounting in that you were able to recoup a portion of the equipment they purchased the useful life of the equipment by taking a write off for each year that it that it is anticipated that the equipment will be useful to your business. One of the interesting things about depreciation, as it relates to finance, is that often the depreciation expense equals the cost of the equipment that you will need to acquire for your business while concurrently providing you with the benefit of being able to write off the interest that is associated with financing that is required in order to acquire this specific piece of equipment or machinery.

 

Prior to financing any piece of new equipment, you should speak with your certified public accountant so you can make the appropriate determination as to what the exact case will be not only in regards to the interest that we need to be paid in regards to the loan that you're taking out the acquisition of equipment but also in regards to the depreciation expense that you will receive on a year-to-year basis as it pertains to your profit and loss statement. In many of our future discussions, we will continue to focus on the issues as relates to equipment finance while concurrently focusing on how you can boost your cash flow through the acquisition of new equipment through leasing programs. Additionally, it should be noted that several acts of Congress have assisted a number of businesses in regards to accelerated depreciation and tax credits in regards to purchasing new equipment for small businesses as well as medium-size businesses well. Given the current economic climate, the federal government has taken a keen interest in providing a number of incentives that allow individuals to purchase new machinery through lease and finance programs while concurrently providing them with tax benefits that encourage them to do so over the next 3 to 5 years. In fact, many aspects of the American Recovery and Reinvestment act specifically focused on assisting small businesses with acquiring the needed equipment to expand their internal infrastructure as it relates to their business operations. Again, only qualified certified public accountant can provide you with the insightful information that unique making a determination as to whether or not to use finance or leasing as it relates specifically to the type of limit that you're purchasing. It should also be noted, that different types of machinery have different useful lives in regards to the depreciation that he can take on an ongoing basis as it pertains to your profit and loss statements and casual analysis. As such, the CPA will be able to effectively provide you with the anticipated tax benefits and costs that are associated with using Apartment finance.

 

Again, returning to a discussion as it relates to small business equipment finance, the first step in receiving this type of funding this to contact manufacturer of the equipment that you're purchasing to see if they have an internal financing arm that will directly provide you with the capital you need in order to acquire a new machinery for your business. This works in a very similar fashion to car companies that directly provide financing to their customers and dealerships so that to purchase new vehicles. As such, when you seek to acquire new equipment for your business, and when you take the same view in regards to apply ring new machinery/equipment as if you're purchasing a new vehicle for your personal use for your business. Very large manufacturers, recognizing the need to provide quick and finance to their clients, have developed these internal financing arms that allow them to provide zero interest rate loans or very low interest rate loans to their customer base over a three-year to five year time frame. As such, and again, you should first make sure that the manufacturer of the equipment you are seeking to acquire has an internal financing arm that can provide you with an a below-market interest-rate as it relates to your acquisition of new equipment. If, the manufacturer that you're working with does not have this specific type of financing in place then you will need to work with a traditional bank with or a specialized finance firm that will provide you with the capital that you need in order to finance your new machinery purchases.

 

The terms that are typically associated with small business equipment financing are usually extremely favorable for the individual or company that is purchasing machinery. This is primarily due to the fact that in the event that you default on the equipment finance loan that you are seeking then the bank or manufacturer can quickly foreclose on the specific piece of equipment and resell it to a third-party. As such, one of the best ways to receive financing, in today's credit environment, it is through the use of the small business equipment financing if your business is extremely capital intensive. Examples of capital intensive businesses include manufacturing companies, transportation businesses, or companies that have a substantial amount of tangible assets in order to conduct their business operations.

 

Many companies seek to use equipment leasing rather than equipment financing in order to effectively generate a better tax benefit for their business in regards to their profit and loss statement. However, this is not increase the value of your business as you are not paying down a tangible asset for the loan that you have received in order to acquire new machinery for your business. However, it should be noted that using equipment leasing versus small business equipment financing may  be in your best interest since you are able to write off the entire amount of the lease rather than having to take a deduction on interest and principal from your profit and loss and cash flow analysis statements. Additionally, the equipment finance may not have the same impact on your ability to effectively raise new capital in the future as the liabilities that are associated with this specific funding will appear on your balance sheet whereas with an equipment lease they may not. Again, the rules regarding capital leases, especially as it relates to the acquisition of new equipment, are continually changing as the facts that these practices have been used time and time again by a number of large businesses that have taken substantial deductions with the intent to make their profit and loss statements seem better than they actually are when reporting back to their board of directors and shareholders. As such, and again, then we recommend your CPA be able to provide you with the appropriate advice as it relates to the ongoing acquisition of new equipment for your business. As we stated before, the acquisition equipment, as well as the finance, may very well be in your best interest to the long-term acquisition machinery that you will purchasing should exceed the costs were relating to interest and depreciation that you will incur as you progress through your business is operations.

 

In conclusion, we will continue to discuss the benefits of small business equipment financing versus equipment leasing over a series of articles that discuss how you can continue to obtain the necessary financing that you need to develop, grow, expand your business as time goes on. In our next article, pertaining to equipment finance, we intend to focus on small business equipment leasing as an alternative to a equipment finance from the perspective of raising the capital you need to develop your business operations while concurrently focusing on some of the accounting issues that come with using equipment leasing. Thank you again for tuning into our articles pertaining to business loans, business lines of credit, equipment finance, small business equipment leasing, and other forms of investment that assist you in developing your business operations. We look forward to providing you with insightful device as it relates to all issues pertaining to business planning and small business equipment financing.


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