Not all business decisions are black and white. There are often shades of gray that depend on the circumstances you’re facing when making the decision. Even solid business principles can change depending on your company’s real needs. This is what happens when you’re trying to decide between purchasing equipment with money from savings or applying for equipment financing.
Save as Much Money as Possible — or Not?
Common sense would dictate that you should always do everything possible to save money in business. After all, the more money you save, the better your profits. This is something many business owners follow to the letter, especially if their parents taught them the value of saving up for items before buying.
On paper, this sounds like a smart strategy. Why waste money on interest if you have sufficient savings to just purchase the equipment outright? Unfortunately, this principle doesn’t always hold true when it comes to getting the equipment your business needs.
Think About Working Capital
You need to think of your business’s finances in terms of working capital, not assets. If purchasing a piece of equipment directly decimates all of your working capital, it’s not usually the right decision even if it saves you money.
True, you got a great deal, but at what cost? Will your company get into trouble with suppliers because of not having sufficient funds to pay bills on time? Will you have sufficient funds to cover business emergencies without needing to apply for a high-interest loan? The answers to these questions should affect your decision.
Get the Equipment You Need
There is one thing that is always true: Your business needs equipment. You should never hold off getting the equipment your company requires for its operations. The equipment generates profits, keeps the lights on and drives most of your financial growth.
Sometimes, equipment financing is the only reasonable solution. It’s practically impossible for construction companies to purchase heavy machinery without getting a loan.
Choose Equipment Financing With the Best Terms
Strike a balance between your company’s working capital needs and its finances. There are times when purchasing equipment directly works, for example for smaller items such as computers, point-of-sale systems, software and tools. As long as you have sufficient working capital left over afterward, go for it!
With middle-market and large-ticket items, however, you’re almost always better off choosing equipment financing. When you partner with a good lender, you can get low interest rates, up to 25 years for repayment and comfortable monthly payments.