Business growth is a goal for most small business owners. To achieve that goal, you may need to increase your working capital and up your production capacity by purchasing new or updated equipment. That’s where equipment loans come in.
Addition Financial offers equipment financing loans to help our business members increase their productivity and achieve their business expansion objectives. It may not be obvious how getting a business equipment loan can support your growth goals, so we’ve created this guide to help you understand the benefits of buying equipment for business use with an equipment loan.
Business growth can rarely be attributed to one thing, but it is often associated with increased efficiency and productivity. When products can be manufactured more quickly and at a lower cost, or services can be provided at a lower expense, achieving expansion goals is something that becomes easy to accomplish.
Business equipment may help with business expansion in a variety of ways. Whether your business is upgrading your computers and office equipment, investing in software, buying manufacturing equipment or purchasing company vehicles to deliver products or provide services, the investment is something that can help your business to grow.
Here are some of the advantages of purchasing new equipment to help your business expand and grow:
As you can see, purchasing new equipment is not just about upgrading the equipment you use. It can help you to grow your business by providing an array of tangible and intangible benefits that will allow you to put your expansion plan into action.
There are multiple equipment financing options available to owners of small and large businesses, but equipment loans have some benefits that make them the most advantageous option for many companies.
In most cases, the equipment you buy will serve as collateral for your equipment loan. That said, you’ll still be the owner of the equipment–something that wouldn’t be true if you were leasing instead of buying.
When you own equipment, you get tax advantages that we’ll talk about later. You also have full ownership of your business and manufacturing processes, something that can help you control costs and stay competitive.
Equipment loans are term loans, so monthly payments for an equipment loan must be incorporated into your budget. Overall, getting a loan is typically less harmful to your cash flow than buying equipment outright.
Since cash flow is the lifeblood of your business, it’s essential to do whatever you can to keep the money flowing and avoid shortages that may negatively impact your ability to serve your existing customers.
Debt isn’t bad for your business and it’s important to keep that in mind. While it’s not a good idea to borrow more than you can afford, carrying some installment debt can help you improve your business credit score.
The key is to make loan repayment a priority and stay on good terms with your business lender. Doing so will make it easy for you to get loans and other forms of business financing in the future.
For small businesses, it can be difficult to get access to the newest and most powerful technology without help. Equipment loans can provide you with the money you need to take advantage of technological advances.
Without the right technology, you may find that you struggle to keep up with your competitors and achieve your growth goals. With it, you can become an industry leader and the company of choice for your target market.
Choosing an equipment loan doesn’t need to be complicated but it does require research and attention to detail. Before you apply for a loan or sign a loan agreement, here are some things you’ll need to consider:
When you get an equipment loan, you’ll be taking on debt. That’s not necessarily a bad thing for your business, but you’ll need to be practical and understand the impact the monthly payments will have on your business before you proceed.
Taking out a business equipment loan can help your business grow in more than one way. While the monthly loan payments must be added to your budget, there are two tax benefits you can take advantage of when you use capital equipment financing as part of your growth strategy.
Depreciation is a tax advantage that allows businesses to recoup the lost value of equipment over time. You have the option of taking the full depreciation deduction in the year you purchase equipment or taking it over multiple years.
The rules around depreciation are complex. You can read about them here, and you may want to consult with a tax professional before you choose the depreciation method that’s best for you.
The loan payments for your equipment financing are not tax deductible because the loan principal is considered taxable income. However, you can deduct some of the interest on your equipment loan as a business expense.
The Tax Cuts and Jobs Act of 2017 changed the rules around interest deductions. For 2023, the rule is that you may deduct interest as long as it does not exceed the sum of the following:
You can get complete details on the Internal Revenue Service website, here. You may want to discuss interest deductions with your business accountant before you claim the deduction on your tax return.
Here are a few tips to help you make the most of your equipment loan and use your new equipment to support your business expansion:
Getting an equipment loan can help you make your business more efficient and more productive, allowing you to pursue your expansion goals and watch your business thrive.
Equipment loans can help your business get the money necessary to replace, upgrade or purchase new equipment to improve your productivity and outpace your competitors. The information we’ve provided here can help you evaluate your loan options and make the most of your equipment loan to fuel your business growth.
Do you need an affordable equipment loan for your business? Addition Financial is here to assist you! Click here to read about our equipment loans and begin the application process today.