Equipment financing refers to a commercial loan or lease which is utilized to purchase business equipment, which is any non-tangible personal property attached to a trade, such as computer hardware, office furniture, and the like. This type of financing is critical to a business’s ability to compete in today’s markets. The fact is that most businesses don’t have the cash on hand – even those that do often have some level of unused capacity. Equipment financing is therefore a critical element of modern business operations for a few reasons.
The primary reason why equipment financing is so critical to modern business operations is that the need for working capital is greater now than ever before. As business conditions around the world continue to deteriorate and consumers continue to tighten their belts, small businesses need to reduce their costs of doing business. In order to reduce costs, many companies are finding it necessary to reduce operating margins by increasing their spending. With limited amounts of working capital available on hand, it has become necessary to turn to outside financing sources to meet short-term funding needs. Equipment financing provides a critical bridge of credit between short-term financing needs and long-term working capital needs.
Another reason why equipment financing is critical to modern business owners is that a significant portion of business equipment is generally considered to be long-term investments. Even though consumer spending continues to decline overall, the purchasing patterns of consumers in general have been remarkably consistent over time. This means that unlike most businesses, small businesses that possess a large inventory of fixed assets (such as equipment) tend to generate strong operating cash flows even as they age. Because this is such a large portion of the total value of a business, equipment finance provides critical working capital funding and enables business owners to maintain ownership of their fixed assets for the long-term.