How to Leverage Manufacturing by Purchase Financing
For many manufacturers, the costs of purchasing new equipment or replacing equipment that has reached its end-of-life can be more than daunting. Fortunately, that is where purchase financing helps. It refers to availing of credits to buy equipment or raw materials for working capital requirements.
The alternative is to lease the equipment through a leasing company. This option is easier to finance than a conventional loan. The leasing company buys the asset and then rents it to you for a monthly fee. Once your lease ends, you can return the asset or purchase it for a nominal amount.
However, no single financial product can always be used effectively in every situation. Instead, the financing you use depends on the situation you are facing. Let’s understand the common business financing scenarios of manufacturing companies, along with financing alternatives.
A Quick Overview of Purchase Financing
It is a business financing variant where companies can access the capital that they need to purchase equipment. Primarily, the lenders use the equipment purchased as collateral for the loan. So, you can continue to access the asset as long as you service the loan.
If you default on the loan, the lender seizes the equipment and eventually sells it to offset your outstanding loan balance and make payments for any additional costs that you’ve incurred.
Purchase Financing for Manufacturing
Instead of waiting months or years to purchase the assets you need, equipment financing helps you to buy them now, which means you can use them to increase capacity, drive revenues and boost profitability.
Hedge Against Inflation: By purchasing assets now, you lock in at today’s price. Waiting months or years likely means that the price will rise due to inflation and/or increased marketplace demand.
Flexibility: You can customize the funding to align with your specific needs, such as cash flow requirements, tax planning, expense planning and accounting strategy.
Reduce Risk: Even if you have the capital on hand to purchase new equipment, it may make strategic sense to preserve it instead of spending it. Especially if you have some concerns that the equipment in question may not deliver a short path to ROI, equipment financing may be the answer.
Increase Competitive Advantage: The equipment you purchase can be used to increase your competitive advantages, which will translate into a more valuable brand, along with more customers, sales and profits. Conversely, not purchasing the equipment could erode your competitive advantage and damage your brand.
Greater Purchasing Power: Financing gives you more purchasing power, which you can leverage to negotiate a lower price and/or a more favourable agreement.
Tax Advantages: Finance payments are tax-deductible, and you will be able to depreciate the equipment (how fast you can depreciate and the amount depends on a variety of factors, including the type of equipment, when it is purchased, and so on).
Choosing the Right Lender for Purchase Financing
Overall, the speed of your equipment financing application depends on your lender. Some lenders also provide growth capital and equipment financing to help small businesses achieve their short-term goals, especially with the uncertainty of the current business climate. Oxyzo offers unsecured business loans to buy equipment and manage the working capital requirement. The loan amount granted is up to two crores with quick disbursal.