Equipment comes in many forms, but best practices in equipment finance transcend industries and business sizes.

When done properly, equipment financing allows businesses to acquire essential assets in the immediate term without compromising long-term financial stability—whether you are a small business, commercial organization or large corporation. This holds whether you are acquiring heavy equipment, storage tools, IT systems, or other assets. 

Efficient equipment finance is vital to keeping the economy running smoothly. InPNC’s Inside the Minds of CFOs survey, which featured input from CFOs at 300 U.S.-based companies, three out of four respondents said their companies would likely spend more on technology and capital expenditures once the Federal Reserve began cutting rates.

Businesses will use equipment financing including leases, secured loans or lines of credit when they find such options to be more beneficial than buying assets outright.

Specifically, the benefits of equipment financing may include:

  • Increasing productivity, improving service levels and attracting and retaining customers and employees by staying current with equipment.
  • Easing budget constraints by minimizing the drain on your monthly and annual cash flow. 
  • Making your product affordable for customers. 

Consider these do’s and don’ts of equipment finance to maximize cash flow, improve your return on investment and sell more equipment.

Equipment Finance Do's

1. Do: Determine your financing timeline.

Align your financing approach with your equipment needs. For example, consider a short-term instrument for a short-term asset or a long-term instrument for a long-term asset. That is, use your revolving line of credit to finance needs that can be paid off in less than 12 months and focus your equipment financing on long-term, depreciable fixed assets that you will use for more than a year. By doing so, you will keep your company on the cutting edge of technology and your line of credit free of long-term asset “clutter.” You will also be able to acquire equipment with a low- to no-down-payment method, thereby preserving your capital.

2. Do: Pick the right acquisition option for your needs.

There are multiple ways to finance new equipment: cash, operating leases or equipment loans are three of the main ones. When deciding between them, consider factors like the type of equipment, the financial state of the business and the total cost of ownership. For example:

  • Consider cash when you can buy and hold the equipment without hurting the business. 
  • Consider operating leases if you upgrade equipment regularly and want more flexibility at the end of the lease as well as better cash flow in the meantime.
  • Consider equipment loans or capital leases when you want to keep the equipment for a longer period than a typical operating lease, like if you have customized equipment built or modified for your business. 

3. Do: Create a competitive advantage with vendor financing. 

If your business itself sells equipment, move more product at increased margins by offering your customers fast, easy and affordable vendor financing solutions. Tailoring your programs to your customers’ own equipment finance needs will help them grow their business today, positioning them to order more of your product in the future. In lending your customer the funds they need to buy your product, you cement your relationship because they can purchase essential goods or services while building strong credit histories. Upgrading to next generation equipment or technology will also better prepare them for traditional bank financing later while helping them compete in the marketplace in the meantime. 

Equipment Finance Don'ts 

1. Don't: Overlook key business factors. 

Your equipment financing decisions impact many facets of your business, so don’t miss the big picture when considering whether equipment financing is the right choice.

For example, consider business factors such as:

  • The current capital structure of a company and the balance sheet implications of various equipment financing/purchase alternatives. Your equipment and capital spending plans as a whole, not just financing options for a single piece of equipment in a vacuum. How your financing choice would affect your financial statements and profitability, which could be critical to your ability to obtain financing for both short-term operating needs and long-term growth. 
  • The tax implications of an equipment financing decision.

2. Don't: Just pick any lender without careful consideration.

Equipment financing is too important to leave to just any lender, given its impact on your cash flow, operational flexibility and growth potential. Therefore, you want to work with equipment financing experts who will provide the right solution for your specific needs. Your equipment finance specialist should know your business, including your challenges and opportunities. They should also devote themselves to finding the right solution for you so that you can focus on growing your business — not worrying about how you will make it happen. Look for a relationship-driven specialist, preferably with experience and expertise in your industry. 

3. Don't: Make financing hard for your customers.

If you're an equipment manufacturer or distributor, you know that existing and potential customers could choose one of your competitors for any reason. However, making it hard for customers to do business with you is at the top of the list.

Don’t make your customers struggle to get the funds they need to buy from you. Work with a vendor financing specialist who understands the competitive obstacles you face, the challenges you may have had working with other finance organizations, and the opportunities you have to improve your sales process and distribution channels. 

PNC Equipment Finance facilitates the acquisition of all types of business-critical assets for companies of all sales sizes and all types of institutional entities. For more information, visit https://www.pnc.com/en/corporate-and-institutional/equipmentfinance.html.