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Strong liquidity allows businesses to seize emerging opportunities while effectively managing unforeseen expenses. Liquidity also encompasses a critical financial capability that can directly affect a company’s operational resilience and strategic flexibility.
For middle-market businesses, maintaining optimal liquidity is a strategic advantage. Equipment financing is one approach to creating strong liquidity, which can improve borrowing capacity, enhance negotiation positions with vendors and provide the agility to capitalize on time-sensitive business opportunities.
The equipment financing dilemma
Buying the equipment necessary to keep a business running can strain cash reserves and make day-to-day operations more difficult. While paying for equipment using cash minimizes financing costs and offers immediate ownership, it reduces available capital for other priorities. Financing equipment through a loan or lease can allow companies to preserve working capital for strategic investments, innovation goals and unexpected market opportunities.
Equipment finance decisions affect businesses in every industry—whether investing in manufacturing machinery, fleet vehicles, technology infrastructure or specialized tools. This decision mirrors challenges that treasurers face when evaluating technical debt—weighing immediate savings against long-term operational flexibility and potential future costs.
David Feldser, East Region Sales Leader for Equipment Financing at J.P. Morgan, said a company’s total liquidity position includes both its available cash reserves and its regular revolving line of credit. Feldser emphasizes that business leaders should preserve their revolving credit capacity for operating needs rather than using it for equipment purchases.
To illustrate the impact of a major equipment purchase on a company’s credit flexibility, Feldser offered an example: “You may think, ‘problem solved’—except if you have a $10 million revolver and you just used $7 million to pay for that equipment, you now have a lot less availability for something else,” he said. “Whereas if you sourced equipment finance for that $7 million equipment now, you still have your full revolver untapped.”
Types of equipment financing options
To preserve financial flexibility while acquiring necessary equipment, businesses typically choose between two common equipment financing options:
- Equipment loan: The company builds equity in the asset and will own the equipment once they fully pay the borrowed amount. The equipment serves as collateral through a security interest held by the lender (a secured equipment loan). This option works well for equipment with long-term value retention or strategic importance to operations.
- Equipment lease: The company gains access to the equipment for a defined period, with options to return, purchase or extend the lease when the term expires. Leasing often makes sense for technology and other assets that may require frequent upgrades or don’t align with long-term ownership goals.
Long-term benefits of strategic equipment financing on cash flows
According to Feldser, companies should consider financing structures that align with their specific cash flow requirements and business objectives.
“If I’m worried and I want to make sure that I have more cushion in my cash flow, I would definitely be more motivated to do a loan with a longer term or amortization,” Feldser said.
This strategic approach to financing delivers benefits beyond the immediate equipment need. Maintaining a strong liquidity ratio makes companies more appealing as clients to prospective lenders, potentially improving future borrowing terms and expanding access to capital for growth opportunities.
Additional benefits to equipment financing
Beyond preserving cash flow, equipment financing offers:
- Tax advantages: Companies can structure equipment acquisitions to optimize their tax position through interest deductions and depreciation benefits.
- Technology adaptability: Leasing arrangements allow businesses to stay current with evolving technology without the capital commitment and disposal challenges of ownership.
The right equipment financing approach helps your business stay competitive with essential equipment while maintaining the financial agility to capitalize on future opportunities.
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JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/commercial-banking/legal-disclaimer for disclosures and disclaimers related to this content.
