If you have debt as a business owner, the stress about how to pay it off can mount fairly quickly. There’s always been a longstanding fear of having too much debt because it can hamper your long-term plans for success.
But, surprisingly to many, leveraging debt can put a business in a great spot to take advantage of opportunities that you might not have known about. Most profitable businesses can go “Back to the Future” to see where they used financial leverage to help their business grow.
You can decide to use working capital loans to help in slow times, open up a new branch or product line or apply for debt consolidation (which means you’ll pay less interest with a smaller number of lenders –– just as people do with their student loans).
But debt is also a smart way to keep growing while preserving your bottom line. The best way to leverage debt is to purchase assets, such as equipment, that in turn will supply returns that are more than the total cost of its maintenance and repayment.
Commercial equipment financing is a great way to move ahead with what deciding to do with your overall debt, especially when you match your operations with customer activity.
Commercial Equipment Financing Loans To Look At
- Asset-based loans (ABLs) — This is the most commonly type. An ABL is based on assets, accounts receivable, inventory and collateral. You’re putting your future revenue on the line to gain access to money right now. As long as you have good financial statements, good reporting systems, sold inventory and customers who have a strong track record of paying their bills, an ABL should be easy to secure.
- Revenue-based loans (RBLs) — This type of loan is a fixed repayment target that is reached over a period of several years. It usually comes with a repayment amount of 1.5 to 2.5 times the principal loan. Repayment periods are flexible and the pay-back is agreed upon quickly. You don’t sell equity or relinquish control when using this type of financing.
- Factoring — This type of loan is a close cousin to the ABL. It provides extra working capital in exchange for a secured interest in a company’s accounts receivable. With accounts receivable financing, the stability of a company’s customer base is almost more important than the credit score of the borrower. To help repay this loan, eligible receivables are taken directly from the business owner, and customers submit payments directly to the factor through a lockbox.
Using one of these three loans can set your business up for success in the future. Do your due diligence with the proper research to find out which loan might be right for your business. Coming up with a financing plan before talking to a financial institution will give you more knowledge before jumping into the process.