Equipment Finance


Cash Is King — Why You Should Keep Yours


Cash Is King — Why You Should Keep Yours

There are many advantages to financing your equipment purchases instead of paying cash.

Stearns Bank VP of Business Development, Michelle Fuchs, has helped many businesses reap the benefits of commercial equipment financing. They’ve learned that financing, rather than cash, is the best approach for the long-term health of their business.

Michelle sat down for a Q&A about how small business owners can take advantage of commercial equipment financing to improve their bottom line.


Q: Why do businesses pay cash for commercial equipment?

A: Usually it’s because they want to avoid debt and have the cash to pay for it. Others pay cash because they feel it is a simple way of acquiring equipment and don’t want to go through the hassle of financing it. Those that take advantage of commercial equipment financing know that a new machine that produces revenue will pay for itself over time rather than paying cash for it up front. Keeping cash and having a strong credit history for your business makes it easier to deal with any hurdles they may encounter down the road.


Q: Do they recognize the benefits of financing compared to cash?

A: Yes, some see the value in growing their business and conserving their cash. For example, the woodworking industry was hit hard with the Great Recession and either experienced great losses or struggled to make it through. Business owners came out of that with the mentality to be conservative and just pay cash for everything so they own it from Day 1.


Q: What needs to be considered in a cash vs. financing decision?

A: Some look to financing when they see how much they are spending in repairs and equipment downtime. If everything you have done with your business is cash-driven and you wait until you can pay cash, you can miss out on equipment automation upgrades and market opportunities. Finance terms can be structured to match your cash flow situation. Financing also allows you to upgrade to a better piece of equipment than you maybe could have afforded with cash. Financing expands your horizons on your equipment options.


Q: How do business owners weigh long-term profits against immediate cash-flow?

A: I think the manufacturers and distributors do a good job on selling on the ROI and the efficiency of the equipment. It comes down to the commitment, space, electrical requirements, and overhead of that commercial equipment.


Q: What are the main concerns with financing?

A: The conversation isn’t really the benefit, it’s more the cost. They are overly aware that they can pay cash and don’t see the value in financing simply because it will cost them more. What they are not taking into consideration is that financing is part of the cost of doing business. You can’t become well-established without developing a strong credit history. Having a strong credit history will make it easier to get the money when you need it. The ability to move quickly and take advantage of opportunities to grow your business is easier if all you need to do is call Stearns Bank.


Q: What’s your best advice to a small business owner who is deciding to finance or pay cash?

A: As a small business owner, if you have little to no business credit history, I would strongly suggest that they finance and conserve the cash to build their business credit. If they have excellent business credit and things are flowing well for the business, it may be smart to invest the cash in investment or marketing opportunities. Conserving cash gives you greater financial flexibility.


Q: Where do small business owners stumble in their decision to finance vs. paying cash?

A: Not asking the questions and educating themselves on all these different avenues to acquire a piece of equipment. You don’t need to be an expert, but taking the time to look at your options and how it can affect your business is crucial in successful businesses. You have to be able to separate what you would do personally versus what you would do in your business.


Q: How is financing better for tax purposes?

A: Depending on how you and your accountant want to report your equipment purchases – financing versus paying cash can be more beneficial. Say in 2017 you have a large profit and need write-offs. Section 179 is huge in the equipment purchasing world and customers can still take Section 179 if they finance their equipment. One can take the upfront deduction with Section 179 and the interest write-off for the term of the loan.


Tax rules always impact your business decisions and which commercial equipment you finance.

All small business owners should make research a priority early on. And, as the years go by, it doesn’t hurt to research the latest changes to United States tax rules. You will only benefit from it in the long run.

If you’re not comfortable with understanding tax laws and regulations, or deductions like Section 179, find a tax professional who can help you.

Topics: Equipment Finance

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