The principle of good debt v bad debt that Robert Kiyosaki articulated so well in his classic book Rich Dad Poor Dad is one of the fundamental principles to taking control of your finances. More than that, using good debt well, your outcome will be to build income, wealth, and multiple streams of income.
This principle extends to small business loans as well where business owners who use good debt will build income through multiple streams and a pathway to profitability.
How Equipment Finance and Asset Finance Works
Used correctly business loans are a powerful income generating tool. However if used to prop up a business that perhaps isn’t strong enough to justify being maintained, small business loans can become painful instruments.
Take for example equipment finance, also known as asset finance. Equipment finance and asset finance are excellent business loan types for generating income. Equipment finance provides funding for your asset purchases like cars and machinery and allows you to pay off the purchase over the life of the equipment while it earns you an income.
You can also use equipment finance to raise capital using the equity you might have in your business’ equipment.
What Benefits and Risks Are There to Equipment Finance and Asset Finance?
The features of equipment finance are great if you’re using the capital to take advantage of an opportunity or purchase more income generating equipment that can be difficult to fund (like scaffolding for instance).
However, if the capital provided by an equipment finance loan is being used because the business isn’t profitable and it’s just paying bills, when that capital runs out you’re in a worse position. The impact to cashflow the equipment finance repayments can then inflict can really hurt a business and perhaps make a more difficult position more of an imposition.
The easiest way to think about equipment finance is that it’s at its best when used to fund the purchase of an asset, income stream, or business opportunity. And whilst there are certainly time when it can be used for emergency funding, it should be occurring in conjunction with a strong analysis of business viability.
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