How To Approach Equipment Financing for Working Capital

Equipment financing is a popular type of financing that can help your company purchase new equipment. This purpose is important, especially considering how huge an effect new equipment can have on your operations.

What you may not know is that there are other reasons to turn to equipment for financing purposes. With your company’s assets, you can also get working capital for a variety of needs.

Options such as asset-based lending and sale-and-lease-back programs work in this way. This guide can help you know what to expect and why you should give serious thought to these alternative lending options.

What Is Asset-Based Lending?

Asset-based lending goes by many different names, including bridge financing, ABL financing and hard money lending. These different options all involve the same thing: using a valuable business asset as collateral to get a short-term loan.

There are times when ABL financing can be a lifesaver for your business. For example, if you need a loan urgently because of a business emergency, asset-based loans can have your back. Unlike traditional bank loans, which can require months of verification, ABL financing usually only takes about a week for approval.

Bridge loans are common for strategic business goals, too. For example, if you know you need a large volume of inventory for seasonal ordering surges, you can take out a bridge loan to purchase items at a significant discount. With the increased revenue you make, paying off the loan and making a sizable profit is relatively simple.

What Is Sale-and-Lease-Back Equipment Financing?

If you need an infusion of working capital, sale-and-lease-back programs can be a favorable option that is practically debt-free. Working capital is valuable for small businesses because it can help with a large variety of needs, including payroll, taxes, inventory, expansion costs, technology purchases and other investments.

Lease-back financing involves selling your existing heavy machinery or construction equipment to the financing company. This gives you an infusion of capital instantly. You can continue using the equipment via a lease. In other words, you get the benefits of a loan, but with the lower monthly payments of a lease.

What Factors Should You Consider?

Like any type of financing, these alternative lending programs have pros and cons. They’re more convenient and faster for business owners to use, but the tradeoff can include higher interest rates and shorter repayment terms. Choose a lender that is willing to answer your questions in detail and walk you through the process.

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