Some construction professionals may believe cash and credit provide different means to the same end: buying equipment, machinery and other assets for a company, as well as addressing additional expenses. It's important that business owners understand the similarities and differences of these two financial assets and the potential benefits and drawbacks of each.
This knowledge is especially vital when making major purchasing decisions, like a new piece of heavy equipment. Let's look at how cash and credit compare:
Credit frequently involves some more requirements up front. Compared to situations where businesses have the necessary cash on hand, applying for a line of credit takes a longer amount of time. It also requires more work on the part of the company in terms of sharing financial statements and getting approval. Credit also involves interest payments, and frequently a down payment, as well. These additional factors involved in using credit mean it's not automatically the right choice for an organization looking to make a large purchase.
However, credit offers a number of advantages. For companies with solid financial standing, it's rarely an issue to secure credit for a large purchase. When working with a captive finance company, those advantages expand. Businesses can work with a provider that's intimately familiar with their industry and cooperatively select terms and conditions that meet the unique needs of the business. With a number of variables involved in securing financing for equipment, a captive finance company frequently gives businesses seeking credit the most agreeable terms.
Using credit creates more flexibility for organizations as well, expanding purchasing power by creating a complement to cash on hand. Many companies like to limit the use of cash to specific areas of operation, like payroll, rent and similar considerations.
A line of credit allows businesses to maintain the financial needs tied to those critical aspects of operation while leveraging the credit to make major purchases and create or maintain the capacity to make new purchases. Cash can instead be used to make the monthly payments associated with the line of credit and keep interest payments to a minimum.
Having either fixed or revolving credit at the business's disposal allows for more overall flexibility, a chance to readily respond to opportunities for growth and to proactively improve machinery and equipment.
To learn more about options for making major equipment and purchases, visit Cat Financial.