Budgeting helps make financing predictable, but business owners know that you can’t anticipate everything, especially unexpected costs. When a business is looking to make strategic financial advances, specifically in reducing financial stress or managing fluctuations during off-peak seasons, they might consider a payment deferral.
Payment deferrals offer temporary financial relief and immediate breathing room during a financial crunch, and—when implemented at the right time and paced responsibly—have the potential to lead to greater financial success in the long run. To better understand the impact that deferrals can have on your business, here are some of the benefits that come with payment deferrals.
Benefits of Deferrals
Deferrals provide a financial buffer
Cash flow is the lifeline of any business, but maintaining healthy cash flow is easier said than done. In months where unexpected costs arise, business owners need the option to intentionally defer expenses to a future period, helping preserve financial stability and providing a buffer to prioritize more urgent and immediate spending.
Deferrals help with up-front savings
Deferrals offer business owners the opportunity to save money up front while still staying within budget and allow businesses to close deals sooner and hit quotas faster, even in lean budget seasons. Similarly, deferrals remove barriers to saying yes to new financial commitments, even when the current budget is maxed or restricted. This preserves current finances and allows for the flexibility to move payments to a later date, when it makes more sense budget-wise.
Deferrals mean faster access to equipment
Deferrals give customers immediate access to equipment by postponing payments until the financing period begins. This gives businesses the option to start operations straightaway and pay for equipment with the income generated.
Deferrals enable present-day financial flexibility
Deferred payments allow businesses to postpone cash outflows, which can raise the present value of those cash flows and increase the value of investments.
For example:
A farmer is leasing a tractor from a company, and instead of paying $100,000 up front, the company allows the farmer to defer the payment. The farmer can use the money that would have gone to the tractor payment to plant even more crops to harvest, sell, and cover important immediate costs like fuel, seeds, and labor. The farmer is trusting that he will earn more money by using the tractor now than it will cost him to pay later. He is also trusting that he will generate enough revenue by using the tractor now to cover the accrued interest costs that come with deferring a payment.
To further adapt to our customers’ needs, we recently launched a Deferral Program providing financial flexibility for customers to make more confident business spending decisions, without the weight of immediate payment pressures.
Our team is here to assist you in understanding the payment deferral process and its implications and assess whether this option is feasible for your business. Contact us to learn more about the flexible financing solutions we offer and how Prime Capital can support your broader financial position.
Sources:
https://www.fairstone.ca/en/learn/your-loan/defer-payments
https://www.investopedia.com/terms/n/npv.asp
https://firstbusiness.bank/resource-center/benefits-deferral-programs-equipment-vendors/
