Every business understands the significance of buying, upgrading, or replacing the essential equipment responsible for daily operations. However, investing in machinery, especially during unprecedented times such as a global pandemic, is challenging as there is already a massive strain on cash flows. Equipment financing is a lucrative option for businesses to ensure efficient operations without impacting stressed cash reserves while also obtaining tax benefits.
What is Equipment Financing?
Equipment financing is a means to purchase machinery by availing advances from financial institutions against it. The asset can be anything specific to the business, such as ovens in a restaurant, heavy machinery for agriculture, to generic equipment like vending machines and laptops. Equipment financing is a boon for various businesses to benefit from brand new equipment that raises productivity without investing large sums of capital upfront.
With an equipment loan, no additional collateral is required as the asset purchased serves as collateral. Equipment financing is a viable, cost-effective solution to acquire business equipment compared to other financing options.
Here are seven reasons to Avail Equipment Finance for Your Business
1. Easy on the cashflows
In Equipment Financing, enterprises can acquire assets without investing large sums of capital upfront. Instead, the equipment’s cost is spread out over its lifetime as equated monthly installments or lease rentals, making it easy on the pocket for businesses recovering from the aftermath of nationwide lockdowns.
2. No dilution in ownership
Machinery and equipment are crucial to ensure the smooth functioning of any business. Equipment financing provides access to the funds required while ensuring that the asset’s ownership resides with your business leaving you in full control over your business operations.
Additional Read: 7 Tips for Business Equipment Financing & Leasing
3. Maintain debt raising capacity
2021 is a year that comes after much uncertainty following the COVID-19 pandemic. The course of the economy and business in the coming months are unpredictable, and companies must keep their options open to withstand the uncertainty. Given that equipment financing requires no additional collateral, your balance sheet and the residual assets remain unencumbered. Such financing ensures that your future debt raising capacity is not impacted.
4. Enhance productivity
Every company has to focus on increasing revenue and regaining lost business without affecting business operations in the current situation. The latest technological advancements need to be leveraged with maximum efficiency to secure the future of the company. Equipment financing can help make such investments with limited upfront capital to enhance productivity and resurrect the business. With its extensive reach and multiple OEM partnerships, Tata Capital offers the best equipment financing options available in the market.
5. Surplus reserves to meet contingencies.
When a business obtains equipment finance, it can reserve surplus liquidity and cash to meet unforeseen circumstances. This reserve would help in increasing the availability of contingency funds for unanticipated events.
6. Tax Savings
As the financial year comes to a close, tax planning might be a priority for several businesses. Equipment finance and leasing offers several tax benefits to companies. The lease rents paid are tax-deductible, and it helps reduce the overall taxable income. Such savings can be further invested in scaling up the enterprise. Reach out to our tax experts at Tata Capital to receive step by step guidance on tax planning for your business.
7. Safeguard against inflation and obsolescence
Equipment finance helps in safeguarding long-term investments against the rise in prices. By locking in a long-term lease or financing option, you can secure your business against a potential increase in prices. Such savings ultimately helps in reducing the cost per unit and improves margins. Enterprises can then acquire extra savings to run their operations smoothly.
Moreover, with the rapid pace of technological advancements, if the machine becomes obsolete, a lease can protect the business from technological obsolescence. Companies can terminate the lease and upgrade their assets periodically to always operate on the latest machinery.
Additional Read: How to choose an equipment finance company in India?
The next few months are crucial to ensure business revival. While there is still much to learn about what the year 2021 might bring to individuals and businesses, being financially prudent with ample cash reserves can help enterprises survive the onslaught. Reach out to us at Tata Capital for further guidance on how you can best manage your funds to maximize 2021 for your business.