Reasons to Finance Equipment in 2022 – Keep Your Own Funds Liquid

By | February 22, 2022

I remember when I was about 14 years old. A few years of mowing lawns had built up my bank account to several hundred dollars.

It was a lot of money for a kid back then. And it made me feel very secure. Money in the bank is a great feeling anytime.

I also wanted a new videogame console. I could afford it right then, but it would have put a huge dent in my bank account. And doing that made me very uncomfortable – what if I needed that money for something else, or an emergency? 

So I made a deal with my father – an advance on a year’s worth of lawnmowing at his business.

I got my console, and I kept my bank account. In essence, I had “financed” a major, bank-account draining purchase. 

While we’re talking much larger numbers (and not videogame consoles), this is the exact thought behind much of the equipment financing many SMB’s do.  Let’s discuss this.

All businesses need equipment. Machinery, vehicles, software, office equipment, computers, and so on. Much of this equipment has a finite lifespan, and it’s continually changing / replaced / upgraded / etc. This means for any successful company, the flow of equipment is ongoing. 

Every company also has a myriad of other operating expenses: salaries, advertising, utilities, rent, taxes, and half million others.  

The “operating expenses” I mention are all generally paid for in cash (liquid funds). And to operate effectively, a company needs a certain amount/timeframe of operating expenses on hand – going month to month is dangerous.

So when expensive equipment is needed (and it will be needed), it makes much more sense to finance it over time. This keeps liquid funds at a much more “comforting” level.  

There’s also another aspect to this – it’s not just operating expenses and/or comfort. Emergencies happen. Having ample cash on hand allows a company to better withstand them. 

What kind of emergencies? Plenty – things like accidents or fires or similar are obvious. But there are more. What if your biggest customer suddenly has issues, and drops you? What if a strike hampers deliveries, and your loading dock backs up? What if there’s a pandemic?  Money in the bank lets you withstand these much better. 

During the early days of the pandemic, businesses borrowed in record numbers and amounts, much of this in the form of immediate equipment financing. Why? Because in the face of uncertainty, it’s better to keep your own cash in the bank and use someone else’s to purchase needed equipment.  

One last aspect to this – tangible equipment generally loses value. While I’d argue that if it’s needed to make revenue (even indirectly) it’s an investment, the fact is, it’s also not an “appreciating asset”. And the smart money says it’s always more advantageous to finance those things and pay for them over time. 

So keep your own money in the bank. If you need equipment, you can use ours. 

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