Every small business, at one point in time or another, finds itself in a situation where it has an opportunity to expand or grow, but needs sufficient funds in order to achieve that goal. Sometimes the expansion has been planned for months before it finally takes place, while at other times it happens spontaneously as a result of an unexpected opportunity. No matter how growth takes place, it is vital for the long-term success of the business.
Why is it important to grow your business?
If the business fails to grow, it becomes stagnant and is even likely to fail over time. As a business owner, you might be satisfied with your company’s current financial performance and may wonder if growth is really worth running after, considering the risks involved. There is the risk that your investment may not pay off as well as you expected or the business will not will be able to cope with the increase in operations.
While these risks are present, they are worth taking, considering all the benefits growth brings for the business. Not only does growth mean increased sales and profits, but it also improves the company’s brand image. A growing business is seen as a successful one – you increase your market share, become stronger in the market compared to your competitors and are able to acquire resources such as workforce and external finance easier than ever.
The stakeholders of the business benefit too. Employees benefit from career advancement opportunities and increased pay and benefits while customers get access to a wider range of products and improved services.
Growth and the need for new equipment
Every business adopts a different growth strategy but most forms of growth do require some investment in new equipment. For example, your business may have started on a small scale with limited operations but as demand grows and your brand gains recognition in the market, you may find the need to increase production and overall operations. You may need new manufacturing equipment with greater production capacity, another delivery vehicle and so on.
Alternatively, if your current products have done exceptionally well in the market, you might be thinking of expanding your product range. A new product means setting up new manufacturing facilities which will again require you to procure new equipment.
While a business does need to invest in equipment in order to grow, business equipment is often very expensive and many businesses do not have the funds to incur this expense from their own pocket.
A recent study of small businesses found that over 40% of small businesses had trouble managing their day-to-day finances and faced cash flow problems during the year. With fluctuating sales, slow-paying customers and the need to pay operating expenses on time every month, it is a challenge for small businesses to ensure their cash flow stays positive. Pursuing new opportunities with their own resources is often not possible and at some stage external financing becomes the order of the day.
What are Business Equipment Loans?
A business equipment loan is a type of financing option that allows the business to purchase equipment it needs when it is short on funds. Most of these loans require the business to make a down payment of around 10% to 20% of the price of the equipment, with the lender financing the rest. Some loans even cover the entire price of the equipment, although these options do tend to be costlier than the rest. The loan is then repaid over a fixed term, usually 1-10 years.
There are many lenders today offering Small Business Equipment Loans. While some only provide funds to companies operating in certain industries that require particularly expensive equipment such as the construction industry, others aren’t industry-specific and cater to a wide range of businesses.
There are many reasons that make business equipment loans the ideal financing option when you need equipment to grow your business:
- Low risk
Business equipment loans are a very popular financing option because they carry little risk for both the loan provider and the borrower. As the lender has the option to recover their funds by taking possession of the asset in case the borrower defaults, their risk of a loss is significantly reduced.
On the other hand, borrowers benefit from the fact that they are not putting any other asset at risk and the loan can be easily repaid over time as the asset starts generating revenue for the business.
- Easier to obtain than traditional bank loan
The process of applying for a business equipment loan is a lot easier and quicker than most traditional bank loans. There is less paperwork involved – the lender is likely to ask for your business records, credit score, bank statements and tax returns. Approval usually takes a few days, depending on which lender you choose.
Additionally, since it is a low-risk funding option for the lender due to the equipment itself acting as security on the loan, these loans are easily available to many kinds of businesses.
- Access to quick funding
Most business equipment loans can provide businesses with funding within a few days after the application is approved, especially if you are working with an online or private lender. If you are taking a loan under the SBA, however, it may take a few weeks.
- No other collateral required
The best thing about this loan option is that you do not need to use your personal assets or the existing assets of the company as collateral on the loan. Instead the equipment being financed acts as the collateral, with the lender having the right to take back the procured equipment in order to cover their loss.
- Better option than leasing equipment
If you need equipment to grow, you are probably considering whether to buy or lease. The major drawback of a leased asset is that the lease cost is only an expense for the business – once the lease period is over, you lose the asset. In case of a loan, you get full ownership of the asset once the loan is paid off and you can continue to use it for an indefinite period of time.
Additionally, your financial position improves as a result of an equipment loan as your assets increase in value. There are tax incentives as well because the price of the equipment under such loans is tax deductible.
The Bottom Line
The business has all it needs to become more efficient with the right machinery and equipment in hand. The efficient business operations increase customer satisfaction and help the company gain a competitive advantage in the market. So start looking for the right equipment financing today and watch your business flourish.
