Equipment Purchases - Nearly 80 Percent of Businesses Use Financing
By Curt Newsom
Are you thinking about financing to acquire the equipment or technology your car wash business needs? You’re not alone. According to a recent Equipment Leasing and Financing Association (ELFA) study, 78 percent of businesses used equipment financing. With a 3 percent growth in investment in equipment and software anticipated through 2017, the need for financing remains strong.
It is important for car wash owners to understand the business advantages of leasing and financing. Businesses can sidestep substantial cash outlays and avoid depleting bank credit lines. They can also align payments with revenue generation. In addition, tax incentives on equipment acquisition could substantially lower overall cost of equipment and save companies $510,000 or more in tax deductions when applying IRS tax code Section 179.
Whether you’ve financed your business purchases in the past or not, here are three key things you should consider when making the decision to finance car wash equipment, point of sale system upgrades, security systems, and more:
1. How quickly will you make a return on your investment?
For purchases that take several months or even years to see a return, financing helps maintain your balance sheet by spreading the cost over time via monthly payments. Some finance companies offer deferred payment options to help defray upfront costs — you could potentially start seeing a return before making a full monthly payment.
2. How soon will the equipment need to be replaced?
With new equipment and technology upgrades and features coming more rapidly in the car wash industry, we see an increase in the speed of obsolescence. If the asset you’re acquiring will need upgrading, financing can help reduce the risk. Rather than paying full price and then having to trade-in or sell when you upgrade, a lease option may allow you to easily upgrade to the newest version.
Some equipment or other assets have a long useful life and you don’t need to worry about obsolescence. In those cases, using financing may assist in managing your cash flow. Many businesses still choose financing to maintain balances and avoid depleting their cash reserves.
3. Does the purchase have additional soft costs?
When purchasing many types of equipment or software, car wash owners are often faced with additional soft costs such as installation, training, shipping, taxes, and more, which can significantly increase the expenses incurred. A lender that offers 100 percent financing is able to wrap those costs into your finance package to help you avoid a large initial outlay of cash.
As the ELFA study highlights, the decision to use financing versus paying cash is one every business faces when acquiring assets. Be prepared by requesting a pre-approved line of credit, and run your business with peace of mind. With some financing programs, car wash owners can finance expansion locations as well as nearly any new or used equipment: • In-bay systems • Tunnels • POS systems • Dryers and vacuums • Self-serve and entry stations • Water systems and more
Additionally, a working capital loan is an effective financial product to help cover the expense of consumables used at car washes including cleaning and polishing products, high-performance drying towels, and other items.
Curt Newsom is vice president of sales – car wash with Ascentium Capital, a national direct lender that specializes in financing for the car wash industry and a member of the International Car Wash Association. Car wash owners can request several free resources that can help in choosing the right type of financing including information about potential tax savings on equipment purchases. For more information, contact Curt Newsom at (281) 902-1939 or by e-mail at CurtNewsom@AscentiumCapital.com.