No small business owner should underestimate the value of the right equipment in fuelling its operations and facilitating its growth. For a tech startup, for instance, cutting-edge computers and software can mean all the difference between leading the market and lagging severely behind it, sometimes in a matter of months.

Construction companies, on the other hand, depend on the latest heavy machinery to improve their efficiency and project turnaround times. And, a local bakery may find that a commercial oven that works reliably is worth its weight in gold. These examples underscore the broad spectrum of equipment needs across various sectors, and they also highlight how crucial it is for businesses to stay equipped with the right tools.

However, small business entrepreneurs will have to face significant financial challenges when acquiring and maintaining this essential equipment. Limited cash flow, the steep upfront costs of new equipment, and the complexity of choosing financing options for procurement can make it difficult for business owners to make the right decisions. Moreover, the rapid pace at which modern technology evolves means that what’s cutting-edge today may become obsolete tomorrow. How would a small business entrepreneur know whether their investment is worth it, or will end up being a money drain in the near future?

If you’re a small business owner in search of practical, actionable advice on managing your equipment financing, here are some actionable tips for both meeting your immediate operational needs and positioning your venture for long-term success:

Do Your Research on Available Financing Options

While it can be overwhelming to explore the sea of financing options currently available to up-and-coming small business entrepreneurs, knowing what choices you have and how they differ from each other is the first step toward making an empowered decision. Traditional bank loans, with their competitive interest rates and term benefits, have long been a go-to for business financing, but they’re not the only option on the table. An equipment leasing arrangement, for example, will give you the chance to take advantage of the latest technology without the hefty price tag of ownership. This can be particularly advantageous if you require regular upgrades or if you’re looking to conserve cash for other investments. Additionally, a business line of credit can provide the flexibility to access funds as needed, ensuring you have the capital to cover operating expenses or seize new opportunities without delay.

It’s also worthwhile to consider the many benefits of taking your small business banking online and applying for financing through a digital banking platform. Many digital banks and other non-traditional financial institutions cater expressly to the needs of smaller business entities and can provide advice and solutions that are well-suited to the unique needs of such companies.

Businesses that operate in the Philippines, can explore Maya Business Deposit, a fully digital banking product by Maya Bank, Inc. A small business entrepreneur opening a Maya Business Deposit Account will see funds from their loan deposited to their account instantly and in full, which means that the much-needed capital can be used to procure equipment right away.

Check Your Credit

It’s impossible to overstate the importance of a good credit score when it comes to securing favourable financing terms for capital expenditures like equipment. Lenders use this score as a measure of your company’s reliability and the risk involved in lending to you. Therefore, once you start exploring your equipment financing options, you’ll need to begin with a clear understanding of where your business’s credit stands.

Regularly checking your credit report can help you catch and address any inaccuracies that might be pulling your score down. It’s equally important to grasp the factors that influence your credit score—such as payment history, credit utilization, and the length of your credit history—to determine the steps you should take to improve it.

Improving your credit score often involves paying down existing debts and maintaining a track record of timely payments. This might require some additional financial discipline and planning on your part, but the effort will pay off significantly when you become eligible for more attractive financing options. Keep in mind that building or repairing credit doesn’t happen overnight, but the benefits of lower interest rates and better loan terms will make it a worthwhile investment in your business’s future.

Consider the Total Cost of Ownership

When eyeing your next piece of equipment, it’s tempting to focus solely on the sticker price. However, savvy business owners will know that the initial purchase is just the tip of the iceberg. Operating costs, maintenance, repairs, and even the eventual disposal or resale value of the equipment must also factor into your financial planning.

An energy-efficient model, for one, might have a higher upfront cost, but can significantly reduce utility bills over its lifetime. Assessing the total cost of ownership means that you’re not just accounting for today’s expenses, but preparing for tomorrow’s as well.

Don’t forget to consider the impact of potential downtime. Equipment breakdowns can halt production, delay services, and ultimately cost your business much more than the price of repairs. Invest in quality equipment with reliable warranties and accessible service options where you can. While this might cost more upfront, it can save you a considerable amount of money and stress in the long run.

Prepare a Solid Business Plan That Includes Equipment Procurement

Consider, too, that your lenders will want to see that you’ve thought through your equipment needs and how they fit into your overall business strategy. Before applying for any type of equipment financing, be sure to prepare a thorough business plan to include in your applications. In addition to the cost of the equipment, your plan should also detail how it will contribute to generating revenue. Whether you’re using the new technology to produce goods more efficiently, reduce labor costs, tap into new markets, or some combination of these, your lenders will benefit from seeing these objectives articulated in your plan.

Your business plan should also include a thorough financial analysis that projects cash flow and explains how the equipment purchase will affect your balance sheet. Incorporating this level of detail into your plan will demonstrate your commitment to fiscal responsibility and your understanding of how the equipment will drive your business forward. And beyond helping you secure the financing you need, a strong business plan will also serve as a helpful guiding document for your business that can see you through periods of growth and change.

Consider Procuring Used or Refurbished Equipment

It may be hard to resist the allure of shiny new equipment, but there’s substantial value to be found in the secondary market. Used or refurbished equipment can often meet your needs at a fraction of the cost. For many startups and small- and medium-sized enterprises (SMEs), this approach enables access to high-quality machinery that would otherwise be out of reach. It also makes a wider range of equipment more attainable, even if the funds gained from financing are on the modest side.

When considering pre-owned options, check the equipment’s history, how many hours it’s been in use, and any repairs or refurbishments it has undergone. Used equipment can be a boon for your budget, but you’ll have to make sure it comes with a reliable service history and, if possible, a warranty or guarantee.
Also make it a point to establish a relationship with reputable dealers who are known for their quality standards. This strategy can dramatically stretch your equipment budget and allow you to allocate funds to other critical areas of your business, such as marketing or R&D.

Sustainable equipment financing is critical for the continual growth and operational efficiency of your business, so approach this challenge with a well-informed strategy and a clear understanding of your options. Remember, the decisions you make today will lay the groundwork for your company’s future; choose your financing options wisely, and aim to procure new equipment with an eye toward the long-term success of your small business.