The equipment may produce revenue. Paying for it can still create a cash problem.
A business can be profitable and busy while still facing a difficult equipment decision.
A truck needs to be replaced. A machine is limiting production. A contractor needs another piece of equipment to support an additional crew. A shop has an opportunity to add capacity but does not want to empty operating cash to make the purchase.
Equipment financing is designed to address the asset purchase separately from the rest of the company's working capital needs.
Keep productive assets from consuming all of your operating capacity
Cash used to purchase equipment cannot also be used for payroll, materials, inventory, marketing or other operating needs.
The same issue can occur when a business uses a revolving line of credit or business credit cards to purchase a long-lived asset.
The business may own the equipment, but the financing decision can reduce the short-term capacity needed to run the company.
For the right business and asset, dedicated equipment financing may allow the company to preserve more of that operating capacity.
Equipment that may be financed
Financing needs vary by industry, but common examples include:
- work trucks and commercial vehicles;
- construction equipment;
- machinery;
- fabrication equipment;
- shop equipment;
- production equipment;
- material-handling equipment;
- specialized trade equipment;
- replacement equipment;
- expansion-related equipment.
New and used equipment may both be financeable depending on the transaction and underwriting.
Match the financing decision to the asset
Equipment is usually expected to produce value over more than one operating cycle.
That is why a long-lived asset may be better evaluated separately from short-duration operating needs.
For example, using a revolving working-capital facility for a machine that will be used for years can leave less revolving capacity available for recurring needs such as inventory and payroll.
The question is not simply, “Can the business pay cash?”
A better question is:
What financing structure leaves the business in the strongest operating position after the equipment is purchased?
Replacement versus expansion
Not every equipment purchase has the same purpose.
A replacement may be necessary to maintain current operations.
An expansion purchase may support:
- another crew;
- higher production;
- additional service capacity;
- a new contract;
- faster turnaround;
- reduced outsourcing.
The financing request should explain what the asset does for the business.
When equipment financing may not be the right answer
Equipment financing is not automatically the best source of capital simply because equipment is involved.
A different structure may make more sense when:
- most of the funding need is actually payroll or inventory;
- the business needs flexible revolving capacity rather than one asset purchase;
- the purchase is part of a much broader expansion;
- the asset does not fit available equipment-financing programs;
- the economics of the financing do not justify the purchase.
The financing should solve the real business need, not merely match a product name.
What helps with a preliminary review
Be prepared to provide information such as:
- business name;
- time in business;
- equipment type;
- purchase price;
- whether the equipment is new or used;
- seller or vendor information where available;
- intended business use;
- requested amount;
- basic business financial information.
Additional documentation may be required depending on the financing option and lender underwriting.
Finance the asset without losing sight of the business
The best equipment purchase is not just one the company can close.
It should leave the business able to operate after the purchase.
If equipment, vehicles or machinery are part of your next move, Mega Funding Source can help you review the available financing paths.
Financing options are preliminary and subject to review and lender underwriting. Nothing on this page is a commitment to lend.