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Businesses must be innovative to stay profitable. Old equipment and technology can slow down productivity and cost extra money to use, which can cut into a company’s profit. The problem is that 61 percent of business executives find innovation to be challenging when it comes to their products, process, and services according to the National Center for the Middle Market. These executives also say up to 14 percent of their profits are attributed to process innovation. Yet, businesses are reluctant to innovate because of the expense of purchasing new equipment and technology.

Equipment financing can solve this problem. Equipment financing is a loan or a lease that allows a company to acquire new equipment and technology while being able to conserve cash for other business expenses. Instead of paying for the entire cost of new equipment upfront, an equipment loan or lease will allow a company to make a monthly payment over a five, seven, or ten-year term.

At the end of the term of a loan, the company owns the equipment and can keep the equipment for further use or sell the equipment to obtain working capital. At the end of the term of a lease, the company can purchase the equipment at fair market value or upgrade the equipment and renew the lease if necessary.

Equipment financing works well with businesses of all sizes, but it’s best suited for middle-market businesses. Middle-market businesses are generally defined as having annual revenues of $10 million to $1 billion in annual revenue. These businesses need to innovate to grow, and they have the revenue that makes them attractive to lenders. Middle-market businesses should establish relationships with lenders so that they can become strategic financing partners for future growth.

Companies of all sizes have different reasons for innovation. Yet, middle-market companies have unique equipment financing needs based on their long-term focus on growth. First, these companies have business models that require innovation to grow. Second, these companies need to innovate to respond to competition and to enter into new markets. Third, these companies need to develop marketing strategies to acquire new customers. Equipment financing allows middle-market companies to save money so that they can innovate while maintaining a budget that will allow them to achieve their business objectives.