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.