Cash is King

Posted on November 3, 2008

Don't tie up your working capital or overdraft by financing through your bank or paying cash for your business equipment.

Contact us now to discuss your equipment finance options

 

 

When researching your finance options for your equipment purchase consider the impacts of using your current banking facilities.

It is important to ensure your business has the available funds to complete your day to day operations and meet your short term financial commitments. Your overdraft is suitable for these requirements but is it suitable for your equipment finance needs?

Banks may look at your overall exposure with them when considering how much credit they are willing to make available for your business. There are complex equations and commercial decisions that come into play when your bank devises an upper limit. This limit may take into account any line of credit, overdraft, debtor finance, property loans etc, that you may have with them. By electing to use your bank for your equipment purchase you are effectively limiting the amount you could obtain for future short term unforeseen operating expenses or growth opportunities.

 

Fig 1.0

A simplified example of a fictitious company and its common bank facilities.
Here Company X has hit its exposure limit as they have used their bank for all their finance needs. This may cause barriers to expansion as their bank may not allow further increases to their limit.

Fig 1.1

Here Company X has used an equipment finance specialist to reduce their exposure with their bank. This extra capital will be useful for future expansion or meeting unexpected working capital shortages.

Why dont I just pay cash then?

There is an age old saying in the finance industry, "If it appreciates buy it, if it depreciates, Lease it". It is important for your business that you keep your capital for assets than can appreciate in value such as property. If the equipment you wish to acquire will be used for income generating purposes but is likely to depreciate then it should be leased.

The reasons for this aren't foreign to many business owners or financial officers but it can sometimes be difficult to make sense of it all. There can be significant tax benefits and the payments are fixed for the life of the contract and don't fluctuate like they would if you used your overdraft, this also gives you certainty for budgeting. It is vitally important that you consider all your circumstances before outlaying cash on any business equipment acquisition.

So what are my options?

Alliance e-finance can offer you a number of products that can assist you in acquiring your equipment. The major benefit of using an equipment finance specialist is it should not impact your exposure with your bank, maximising your ability to have the required credit available for your other business requirements. As detailed above, there are also possible tax benefits that you should seek independent advice on.

What next?

Think about the equipment you currently have. Is there further equipment that you require but you have put off purchasing it because you don't have the cash?

The most important question is. Will this equipment help me generate further income or improve your business? If yes, contact your Alliance Equipment Finance Relationship Manager today to discuss your needs and organise a pre-approval amount and a credit line, obligation free.

Alternatively, you can complete an online application here.
If you are a current client there is no need to complete an application. Simply contact Alliance on the details below.

Email: client@e-finance.com.au
Phone: 1300 539 869

 

Disclaimer:

Advice provided above is indicative only and should not be relied upon to enter into any formal contracts with Alliance Equipment Finance.

Individual circumstances vary and you should consult a professional accountant or financial adviser to consider your specific situation.

It is important that you notify us in writing of whom your current banking facilities are with as we source funds from many different financial institutions.