December '20

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1 6 G R A P H I C S P R O D E C E M B E R 2 0 2 0 G R A P H I C S - P R O. C O M G R A P H I C S - P R O. C O M Whether you pay cash, use a credit card, a traditional loan, or use equipment financing or leasing, under- standing the options is important for all business own- ers related to cash flow. (Images courtesy Roland DGA) T he scene: you are attending a trade show in search of equip- ment and find the perfect ma- chine. As a business owner, the next thought that most likely enters your mind is, how do I pay for this? This article presents some payment op- tions on the pros and cons of common so- lutions. Whether you pay cash, use a credit card, a traditional loan, or use equipment financing or leasing, understanding the op- tions is important for all business owners related to cash flow. PAYMENT OPTIONS Paying cash: If you have the financial means to use cash with no harm to your future cash flow, then paying directly is a viable option to acquire capital equipment. The primary benefits are simplicity, no loan process, and no interest expense. The drawback is the risk of depleting cash reserves and liquidity. If you spend $50,000 in cash today for equipment and that mon- ey is no longer in your account, you risk not being able to make another acquisition or cover unexpected business expenses. Lower- ing your cash reserves may also impact your balance sheet and attractiveness to future lenders. If your business is cash-rich and cash flow is not a concern, paying via cash for capital equipment is a viable solution. Paying credit card: Depending on your equipment purchase price, under $50,000 for example, paying with a credit card may be a method of payment as well. The pri- mary benefits of paying via credit card are the speed of the acquisition, and the poten- tial to take advantage of zero or low interest credit card promotions that the card pro- vider may offer. The challenge with a large acquisition on your credit card is that it may put pressure on your personal credit, specifically having a large balance on your card, impacting your ability to borrow in the future. Also, if the card balance is not paid in a timely manner, you risk being charged high in- terest rates. Additionally, some equipment providers may pass the processing fees the merchant charges onto you, increasing the cost of acquisition. Using credit cards for capital equipment may be a feasible solution if you have excel- lent credit, a lot of revolving credit available, and the ability to pay off your credit card balance quickly based on strong cash flow. Traditional loan: Another solution to acquire capital equipment is to use a tra- ditional loan such as an SBA loan, line of credit, or a business credit card. The ben- efits of traditional financing may include lower borrowing costs for established busi- nesses. Being an established business typi- cally means having been in operation for a minimum of two to five years with strong business and/or personal credit. Common drawbacks of traditional fi- nancing may be the speed of approval, funding, and some credit restrictions due to the borrower's credit profile and/or the type of equipment being financed. If you can se- cure a traditional loan with a competitive Equipment Acquisition Solutions 101: Payment and Financing Options B Y C R A I G C O L L I N G

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