2 Little-Known Ways Equipment Financing Can Save Money
Are thoughts of a debt burden deterring you from leveraging equipment finance? If so, perhaps you’re over-thinking the impact of spreading costs over time.
In fact, the benefits of equipment financing can more than offset the small degree of risk involved, especially if you’re smart about determining finance options and choosing a lender. Most importantly, equipment financing can save your business money, both directly and indirectly.
To illustrate how you might save money with financing (especially if you use heavy equipment), consider the following two realities, neither of which might immediately spring to mind when evaluating the pros and cons of equipment finance.
First: A Note on Inflation
If you have at least a basic understanding of economics, you’ll know that inflation is the general rise in prices which takes place over time. It’s best though, not to think in terms of prices going up, but instead to think of inflation as a reduction in the value of money. For example, assume inflation is at two percent and you buy an item for $100 today. If you buy that same item one year from now, your $100 won’t be enough. You’ll need to pony up $102 instead. In other words, your $100 loses value or “spending power” over the course of a year.
Reality #1: Borrowers Benefit from Inflation
Inflation works in your favor when you take advantage of heavy equipment financing, especially if the rate of inflation rises more than expected over the term of your loan or lease. This is simply a result of the diminishing value of the money that you pay back over time. Nominally there will be no difference, but in terms of real value, the cost of paying your equipment financing provider will reduce as time goes on.
The inflation effect is particularly pertinent to heavy equipment financing, because the types of assets concerned are typically slow to depreciate. Of course, to benefit from inflation in this way, you’ll need to raise your business prices in line with the inflation rate. Doing so ensures that over time, your equipment finance repayments will swallow a decreasing portion of your income.
Reality #2: You Can Buy Equipment to Save Money
For most businesses that use heavy equipment, there are certain machines which can dramatically reduce the costs of operation, either by performing tasks more quickly, more effectively, or sometimes by enabling tasks which would otherwise be impossible.
For example, if you’ve ever seen a $500K lumber harvester strip a tree plantation, you’ll understand just how many labor-hours one machine can save.
By taking advantage of new or used equipment finance to buy machines that reduce labor in this way, it can be possible to generate sufficient savings to fund the monthly payments. The result is a net zero percent increase in expenditure. On the other hand, if you’re fortunate enough to be able to pay a few hundred thousand in cash for a piece of equipment, you’ll have to wait some time for savings to deliver the full payback.
Save as You Pay with Equipment Finance
Whichever way you look at it, purchasing industrial equipment is expensive. However as these examples have shown, cash is not always the cheapest way to pay — and unless your business is cash rich, it’s certainly not the easiest.
With a reputable heavy equipment finance provider like Integrity Financial Groups, LLC in your corner, you don’t need to wait for the equipment you need to work more quickly and efficiently. To learn about our range of flexible finance and leasing options, call our team today at (801) 386-8222.