Review your options carefully when considering asset finance for your small business.
Many businesses don’t have enough money to consider an outright purchase, making asset finance a necessity. You have a number of options.
Should your consider asset finance?
Asset finance makes sense for many businesses. Even if you have enough capital, investing your cash in assets leaves you with less working capital to finance operations or explore new growth opportunities.
The flexibility of asset finance options (with different cash flow and financial implications) can allow you to grow your business faster, generate more profit or simply make better purchasing decisions.
First decide what assets you need
Start by listing the assets you need in your business to:
- Operate more efficiently by using the latest technology.
- Grow – perhaps by using equipment to overcome current production constraints or to enter new markets.
- Become more competitive by matching the capability of your key competitors.
Calculate your return on investment (ROI)
It’s important to make a case for each asset purchase. Investors and lenders may want to see the evidence, but it also helps you make the right decisions.
Requiring staff to make a case for asset acquisitions is a useful discipline for those lobbying for new equipment. It can sort out a genuinely productive investment from a vanity item. For example, most employees would like the latest smartphone or a new company vehicle, but would this purchase really add to the business’s bottom line?
Should you lease rather than buy?
Sometimes leasing an asset can make more sense than owning it. For example:
- A lease agreement that includes upgrading fast-changing technology such as computers at agreed intervals can make more sense than owning these items. You don’t want to be stuck owning equipment with little resale value.
- Leasing expensive production machinery when you know that more efficient models will be coming shortly makes better sense than buying the machinery and then facing additional costs to compete with others.
- Leasing vehicles such as trucks can give you more flexibility than buying the vehicle, especially if demand is seasonal and surplus trucks would be standing idle.
Speak to your accountant or financial advisor about any tax implications before deciding to buy or lease.
New vs. secondhand assets
Do the assets you need really have to be brand new or would secondhand equivalents serve your purpose? Startups especially need to save every dollar to market and grow their business.
Most businesses can save considerably on everything from office furniture to production equipment by:
- Attending local auctions and closing-down sales.
- Bidding on online auction sites such as eBay.
- Attending local closing-down sales or reviewing classifieds in industry journals.
Consider taking out a loan
Taking out a bank loan can be an effective way to finance business equipment purchases that you need, especially if it’s important to you to own the asset from the outset.
The advantage of a loan is that it:
- Doesn’t tie up any capital and may not require additional security.
- Enables you to use your existing working capital and credit lines to generate income.
- Allows you to take advantage of cash discounts offered by the seller.
Loans should be structured to match the expected life of the asset – long-term loans for long-lasting assets such as a building and short-term loans for assets with a shorter useful life.
Our range of finance options
Comerica offers a range of financing solutions, including a business line of credit and term loans.
Small Business Administration (SBA) Loans
We’ve worked hard to establish ourselves as an SBA preferred lender. Whether you’re looking to expand your business, or purchase equipment or real estate, a Comerica Small Business Administration (SBA) Loan can assist with financing to help your company grow.
We’ll work with you to evaluate your needs and find an SBA Loan for your situation.
Nearly 90 percent of all businesses are eligible for an SBA loan program. The general qualification standards for SBA lending are less stringent than many other types of loans, but the same issues are considered such as:
- Acceptable personal and business credit history.
- Owner-occupied business.
- Past earnings and/or estimated future earnings sufficient to repay the loan on time.
- A list of available business assets and (in some cases) personal assets to secure the loan.
Be sure to prepare your case
Chatting to your accountant, financial advisor and your bank will help to ensure you get the right asset finance package tailored to your budgets and your business needs.
You can assist your case for asset finance if you come prepared with:
- An updated cash flow forecast and business plan.
- Evidence that the business generates sufficient spare cash to service the loan.
- A pledge of available assets.
Be prepared also to demonstrate:
- Why you need the asset.
- What contribution it will make to your business’s growth and profits.
