Equipment financing offers a way for startups to acquire new machinery and equipment. There are many advantages to choosing to finance equipment purchases, regardless of the size of your business or how many years you have been in operation.
What is equipment financing for start-ups?
Equipment financing offers particular advantages to startups, who often face purchasing challenges in the form of cash constraints, limited assets and low credit scores. By choosing to lease or to rely on a loan, new businesses don’t have to come up with the full amount required to acquire new equipment. In short, equipment financing is a cost-effective way for entrepreneurs to acquire the equipment they need to get their business off the ground, even with limited capital.
Why choose equipment financing as a startup?
Securing the initial capital for your startup is a pivotal step in launching your new venture. This crucial lifeline often springs from personal savings, familial contributions, credit cards, and bank lines of credit. It’s a finite resource, a lifeline that must sustain your business until it can stand on its own two feet – a feat that’s easier said than done.
It’s vital to spend this seed money wisely. Essential expenses like payroll, insurance, inventory, and taxes come first. Equipment and furniture, while necessary for operations, represent significant outlays that only yield profits after months or even years of use.
Most startups can’t afford to acquire all the equipment they need using their own money. However, through financing, they can gain access to high quality machinery and the immediate benefits of using equipment that may depreciate, but at no cost to their business.
Equipment financing is a win-win scenario, in which startups can access financing for heavy equipment without the downpayment and burden of depreciation that come with a direct purchase.
Equipment financing vs. equipment leasing
It is common to hear the terms “equipment financing” and “equipment leasing” used interchangeably, but they are not quite the same thing. Equipment financing is a general term that can refer to two types of financial backing: loans or leases, which each offer different benefits and drawbacks.
Equipment loans
Loans are a well-established method of equipment financing. A loan usually involves borrowing a fixed amount of money which is paid back in monthly installments over a predetermined period of anywhere from two to six years.
There are different types of loans, but generally, loan payments contribute to the purchase of the equipment, and each payment reduces the overall amount to be paid back.
Equipment leases
Leasing equipment involves paying a monthly fee to a financing company for the use of that equipment. Your monthly payments are similar to rental payments, and the equipment remains the property of the financial institution for the duration of the term. There are tax advantages to leasing, and while lease contracts do differ, most include a purchase option at the end of the lease period.
Equipment leasing is generally considered the better option for both new and established companies.
Advantages of equipment leasing for startups
Leases offer several advantages over loans to businesses that are just getting on their feet. Factors to consider include:
1. Ownership
When you lease, the financing institution initially owns the equipment, with the possibility of transferring ownership when your lease is up. With loans, you assume ownership of the equipment from the outset, and all associated responsibilities including the burden of depreciation.
2. Payments
With a loan or a lease, monthly payments are stable and manageable.
3. Cash flow
Business equipment is known to be expensive, but with financing, you can acquire the equipment you need without disrupting your cash flow, because you won’t need to make a substantial payment in a single transaction. Instead, you can spread the cost of the equipment throughout the lease term, and benefit from fewer tax obligations and numerous possible deductions.
Begin by consulting with an equipment financing company, who will thoroughly evaluate whether leasing aligns with your business needs. At Soluco, we would be happy to guide you in comparing the advantages and disadvantages of leasing versus purchasing equipment, so you can make the best possible decision for your situation. We will even notify you whether your lease has been approved within 48 business hours!
4. Tax benefits
Under the Canadian tax system, lease payments are 100% tax deductible. You can capitalize on Input Tax Credits by treating your entire lease cost as an operating expense rather than a capital expense and amortize your tax payments over a much longer period than if you made a single large purchase.
5. Flexibility
Different lenders offer a diverse range of alternatives, allowing you to choose the best possible equipment financing contract for your particular needs. At Soluco, our team is always available to answer any questions and provide guidance. Give us a call and one of our experienced team members will be pleased to walk you through the process.
6. Get the right equipment when you need it
Equipment financing enables startups to access cutting-edge technology that would otherwise be unattainable. From office equipment to heavy machinery like construction equipment and trucks, leasing offers a valuable avenue for startups to access the latest technology, giving them a competitive edge without straining their budget.
In addition, equipment financing in the form of a lease allows businesses to trade out older models for new ones at a fraction of the cost associated with outright purchases. Leasing provides flexibility for upgrading or expanding your equipment when you need to, so you can adjust to the demands of your market without compromising your financial goals.
Soluco offers equipment leasing to startups
If your startup needs access to the latest equipment, but your budget won’t allow you to purchase it, equipment financing is a practical, thrifty option.
While loans can help, leasing is almost always a better option. Remember, always read your contract carefully, and consult with your lease broker and a lawyer by accountant if in any doubt about the terms before you sign.
With more than 25 financial partners in Canada specialized in commercial equipment financing, Soluco brokers can offer you optimal lease terms to help you get the equipment you need to succeed. Contact us today to find out how we can help your startup thrive!