When it comes to financing growth, CPG startups have more options than ever before. In this ongoing series, The SKU Report will explore some of these different alternatives.
In the first installment, we look at equipment financing.
What is equipment financing?
In the simplest of terms, equipment financing is the process of spreading payments for new equipment over a longer-term on business-critical assets, instead of purchasing it upfront and paying one lump sum. Potential benefits include:
- Preserved capital. Conserve equity capital for growth, product development, key hires, and other higher ROI activities, instead of depreciating assets.
- Cash flow management. More affordable, predictable payments free up cash and credit lines for other operating needs.
- Low-cost and flexible. Some equipment financiers offer a lower-cost form of capital when compared to equity sources and other forms of debt. And the best ones will allow lendees to modify their lease as needed or offer options as the lease matures.
- Retained equity. Again, some equipment financers offer non-dilutive funding, absent of warrants, covenants, and other equity-dilutive components that require lendees to give up shares of their business.
- Growth. Equipment financing can drive productivity, enhance scalability, and enable the lendee to reach milestones sooner because the cash they already have can be focused on growing their business.
How does it work?
Top equipment financiers will work with a lendee to get a handle on their company and equipment needs. They will then conduct due diligence to fully understand the financial scope of the business – where it is now, where it’s headed, and the associated risks of providing funding. CSC Leasing, for example, can offer funding on an asset-by-asset basis, or offer a lease line that can be drawn upon over a set term. CSC also offers a sale leaseback, where it will buy equipment from a lendee that was purchased previously and lease it back to them, to inject some cash into their business or free up headroom.
Terms are flexible and range in length from shorter to longer-term, and are largely contingent on a company’s maturity, financial performance, and capitalization or liquidity.
Who should consider equipment financing?
Organizations, ranging from the earliest-stage startups to the most established enterprises, can benefit from equipment financing, regardless of their age, size, and liquidity. For example, startups that are raising equity can use equipment financing to build out a facility to advance progress on their product. Middle-market organizations can preserve their cash for activities that drive sales. Large enterprises can streamline and reduce costs on a major tech refresh.
If you need to invest in equipment or technology, equipment financing is an option for to explore.
Information for this post was provided by CSC Leasing.
Read other posts on The SKU Report.