Medical and commercial startups should consider investing in equipment loans as they spread the total cost of the equipment. Operation overheads are extremely high for these two start-ups, and they often struggle with cash flow problems. Buying equipment outright might disrupt cash flow.

Why medical and commercial startups should consider equipment loans

Here are the reasons why equipment financing is the best choice for medical and commercial startups:

§  You do not run out of working capital

Undoubtedly, startups have to rely on a constant supply of cash. You will need money for marketing and daily operations, such as payroll and other business expenses. Buying equipment outright will strip away a large amount of cash, leaving you with little for your day-to-day expenses.

If you try to take out an equipment loan, you will spread its cost. Certainly, you will be paying interest on top of it, but this additional payment will help you hit the ground running. At the time of considering commercial equipment financing in the UK, make sure that you will not fall behind on payments.

§  Tax advantage

Another benefit of equipment loans is that they are tax-deductible. The interest that you pay on your equipment loans is completely tax-deductible. In addition, you can also claim depreciation. By showing them on your tax return, you can lower the taxable amount. The more profits you retain, the better it is. Talk to your accountant for a better understanding of tax implications.

§  Predictable monthly expenses

Even though you have to make payments over an extended period of time, you can easily manage them. This is because monthly payments remain fixed. When you know how much money you have to pay down every month, you can easily budget around payments.

Startups need money to meet day-to-day operations. When a fixed sum of money is to be paid, you manage to retain a large portion of cash. This helps you keep the ball rolling. You can easily plan around cash flow by paying down fixed monthly instalments.

§  A low risk of obsolescence

With equipment financing, there is a possibility of getting rid of worn-out equipment. When you purchase equipment outright, you block a lot of money in it, and stick to it unless you cover its cost. By the time you actually cover the cost of the investment, it becomes obsolete, thanks to advanced technology.

Of course, you will be forced to replace the equipment. Replacing equipment frequently will disrupt your cash flow. Your business might end up grinding to a halt. Here comes the role of equipment financing.

You do not have to own it. Leasing will enable you to get rid of it as and when you need to, due to a technology upgrade. You can return the equipment and renew the lease contract for new equipment. This is how your cash flow will remain intact.

§  It will help build a business credit score

Equipment loans help build a business credit score. Since you are to pay down these loans in fixed instalments, this gives you a chance to prove your creditworthiness. If you keep sticking to payments, you can easily prove that you managed with repayments. This will help improve your business credit core.

Bear in mind that a good credit score will help improve your chances of qualifying for business loans at lower interest rates. In fact, you will need a good credit score while applying for equipment loans.

In order to improve your business credit score, you should:

§  You should pay off all your business loans on time.

§  Make sure that your business credit utilisation ratio is not more than 30%.

§  You should have a long history of credit.

§  You should not owe too much debt.

A healthy business credit score is a must to qualify for better deals. When your business credit score is good, you will be able to get business loans with quick disbursal of funds.

Ways to obtain the best equipment loans

Here are the ways to acquire the best equipment loans:

§  First off, you should identify the needs. What equipment do you want to take and for how long? Will you need to replace it? Are you sure that leasing is not a favourable option for you? You must have answers to these questions while applying for equipment loans.

§  You should assess your cash flow. It is essential to analyse whether you are able to make monthly payments. They must not get in the way of meeting day-to-day operations.

§  Find out your credit score. If your business has a separate legal entity, you must have a business credit score. You will also need a personal credit rating to prove your creditworthiness. Sometimes, business loan providers require personal obligations. Therefore, it is essential that your personal credit rating is as excellent as your business credit score.

§  Gather all documents to get approval from an equipment loan provider. Startups need to demonstrate their ability to keep up with payments. This becomes possible only if you submit an income statement and a balance sheet. You must have at least a year of trading experience and be able to generate profits at the time of applying for these loans.

§  Consider financing options. If you have to keep changing your equipment in a very short period, leasing will be a better option. However, if you need equipment for a long time, equipment loans will be the best bet.

§  Consider collateral. Normally, the equipment you buy will be served as collateral, but since it is a depreciating asset, your lender might ask you to put down another asset as security. They may even ask you to give a personal guarantee. Bear in mind that if your business fails to discharge the debt, you will have to pay it off from your personal assets.

§  Make sure that you choose a specialist lender. They might be able to offer you an affordable deal.

§  Demonstrate your repayment capacity. Lenders might be sceptical about your repayment capacity as you are a startup, but if you have a detailed business plan or you have started generating profits, there is a possibility of qualifying for competitive loan deals.

The final word

Equipment loans can help you maintain a smooth flow of cash. As you will be paying down the debt in fixed instalments, your business will not struggle with paying for other operational overheads.

In addition, you can claim interest payments to reduce the taxable amount. As there are other financing options too, the risk of obsolescence is quite low. While choosing equipment loans, do research and choose the most affordable deal.