56 percent of U.S. businesses in the U.S. apply for a loan when they need to purchase a tangible asset.
If you’re running an asset-intensive business, such as a construction or manufacturing company, you know how expensive procuring those assets can get. If you don’t have adequate capital, you’ll find yourself resorting to options such as equipment leasing.
The good news is you don’t need to raise capital to purchase those assets. You can rely on asset financing. This is a type of business loan that enables businesses to purchase equipment while making payments for the asset over a certain period of time.
Are you wondering how this type of financing can help your business? Read on!
Asset Financing Is Easier to Secure
There are two lender-financed ways to buy assets. You can take out a traditional term loan and use the money to pay for the assets. Or you can go in for asset financing, where the lender uses the equipment as collateral.
Given the two options, asset financing is easier to secure since it’s a collateral-based loan.
When you go in for a traditional term loan, the lender relies on your businesses’ cash flows and profits to determine your creditworthiness. Unless your business finances are impeccable, it can be difficult to get approved for the loan. And if you do, the loan will likely have a higher interest rate because of the risks involved.
On the other hand, asset financing means the lender will have co-ownership of the asset. If you default on the payments, they can repossess it, sell it off, and recoup their money. You’ll only lose the asset, whereas with a traditional term loan the lender can come after your personal assets as the business owner, especially if it’s a sole proprietorship.
Plus, there’s an increasing number of companies offering asset financing services. You no longer have to rely only on traditional banks, which typically have stringent loan application processes. This service is a good example of an alternative asset financing lender.
Enjoy a Fixed Interest Rate
If you’re familiar with business lending, you know that interest rates can be fixed or variable.
While a variable rate comes with the promise of lower payments in the future, they could also increase. You don’t want this uncertainty in your business.
Most asset financing loans come with fixed interest rates. This means you’ll pay the same amount of money throughout the term of the loan. Fixed payments are good for business financial planning. There are no surprises that can hurt your cash flows.
Maintain Your Working Capital
You have some working capital. Should you use it to purchase the asset your business needs?
Why use your precious working capital when you can get asset financing? There’s no reason to pump your working capital into an asset that will deliver returns over a long period of time, potentially leaving your business financially crippled.
Asset Financing Is Ideal for Your Company
If you’ve been on the fence about pursuing asset financing, it’s time to cross over. There are many benefits to be reaped, including lower, fixed interest rates, and ease of access. Plus, you don’t have to spend your working capital.
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