The work world is full of people with good ideas and the experience and determination to make those ideas into a business. What is less common is people who also have the capital to get a business going. Quite often the capital outlay required is beyond the reach of an individual, who is simply working to live. Many potential entrepreneurs have no way of saving the kind of money necessary to buy a valuable piece of machinery needed for business. Even though it is quite probable that owning that piece of equipment would generate enough income to pay for the machinery outright in a few years. This is where asset financing comes in. Here are some of the Pros and Cons of Asset financing.
- Not being cash poor: One of the main reasons new businesses fail is because they do not have enough access to cash in the first couple of years. When liquidity is a problem, even relatively small financial issues can be devastating. Accessing asset funding to purchase the equipment for your company, frees your cash flow to deal with operational expenses.
- Depreciation: A major liability of purchasing equipment is that the equipment ages and loses value. Eventually, it will need to be replaced. Purchasing the equipment through asset financing takes away the problem of depreciation. The value of the equipment becomes the problem of the lender.
- The Equipment is Not Yours: This is both a pro and a con. There are advantages to owning equipment, you can upgrade or change the equipment in any way you like, and you can sell it at any time when you want to make a change. However, you are also stuck with that equipment is it is damaged beyond repair and it is up to you to find a buyer at the end of the equipment’s usefulness to your business.
- Term Commitments: Asset financing is not a quick turnaround proposition. Part of the business model of lending includes interest. With asset financing you must expect terms of at least a year and likely longer depending on the type of business and the policies of the lender.
If you do have a business plan that is solid and you have all the other means to make this enterprise a reality, except the capital required for the means of production. Asset financing is a proven and logical step to consider. As long as payments are made, this can be a problem free method of making the jump into business ownership.