3 Guidelines for Machinery Loans & Equipment Financing

3 Guidelines for Machinery Loans & Equipment Financing

Heavy machinery is what can take a business to the next level. Whatever industry you belong to—farming, freighting, couriering, and so on—investing in better equipment is a must for business growth. If you want to be more competitive in your industry, upsizing your operations is something you definitely need to consider.

The problem is that spending on machinery is no cheap task in terms of overhead, maintenance costs, and depreciation. It can take years upon years to have enough capital to upgrade your operations, which is why it might be good for you to consider equipment financing to help accelerate your growth (and profits).

Before you commit to something like a machinery loan, it’s good to know the basics of equipment financing. Here are things to remember if you’re thinking about a loan.

1. Understand the risks

The first thing a lot of banks and investors ask about is the current financial position of your business. All businesses are run on risk, and good entrepreneurs know how to mitigate that risk on a regular basis.

Machinery is expensive, and like any big endeavour, can make or break a business. It is important to know both the financial and physical risks involved when investing in machinery. What will it cost to buy? What does it cost to maintain? What tangible and intangible effects will it have on your business?

One of the best ways to mitigate risks is insurance. Quite often, many manufacturers provide extended warranties and insurance for their machines. Consider these options and include them in your costs when assessing the risks.

2. Strive for efficiency

More often than not, a new machine is meant to streamline the work and make the operations more efficient than they currently are. This usually translates to having more time to spend on other tasks. It is what is done with this additional time that can determine whether the business is ready for that new piece of equipment.

Will the machinery save time and money? Will the new equipment attract more customers? How will my business utilise the time saved to increase profitability? If any of these questions don’t have a good answer, then it might not be the right time to invest in that brand new machine.

3. Find ways to cut costs

Overspending is one of the reasons many businesses end up failing. It is a recipe for disaster if you don’t monitor and moderate your expenses and liquidity. Examine your budget and make sure to always have some cash on hand.

One good way to reduce costs is to see whether or not your latest equipment upgrade is tax-deductible. Often, machines are considered a capital expense, and machinery (as of 2020) costing up to $150,000 can be written off if ready to use by June 30, 2020. An extension until June 21, 2021 has also been instituted allowing machinery of any value to be instantly depreciated by 50% upon purchase.

Taxation is a complicated monster that takes time and effort to monitor, but it can help cut the massive costs of upgrading and buying new machines. It can also be used to handle machinery loans and equipment financing more effectively.

Conclusion

Whether you decide to apply for a loan or financing on your latest equipment, it is important to understand the ins and outs of banking and finance. Streamlining your procedures and figuring out all the ways you can legally cut costs can go a long way towards reaching the next level in your business.

If you’d like to find out more about equipment financing and machinery loans, give us a call today. We’ll be happy to evaluate your current financial situation and figure out the best deal that suits your business’s needs.