Agrifoodtech companies, from startups to more established organizations, hold the key to meeting the world’s increasing — and changing — demand for food, and investors are taking notice.
In 2020, agrifoodtech startups worldwide raised $26.1 billion, a 15.5% year-on-year increase, according to AgFunder’s most recent Agrifoodtech Investment Report. And 2021 looks like it might even beat 2020’s record.
Agrifoodtech businesses of all sizes have multiple funding options to help drive their growth. But beyond venture capital, private equity, and general debt, there is one valuable potential source of cash that many are overlooking.
When a company needs to invest in new technology or equipment, its cash flow is tight, or it simply wants to save time and money, equipment financing can be a smart alternative and complementary source of debt.
What is equipment financing?
In the simplest of terms, equipment financing is the process of spreading payments for new equipment over a longer-term on business-critical assets, instead of purchasing it upfront and paying one lump sum. Potential benefits include:
- Preserved capital. Conserve equity capital for growth, product development, key hires, and other higher RoI activities, instead of depreciating assets.
- Cash flow management. More affordable, predictable payments free up cash and credit lines for other operating needs.
- Low-cost and flexible. Some equipment financiers offer a lower-cost form of capital when compared to equity sources and other forms of debt. And the best ones will allow lendees to modify their lease as needed, or offer options as the lease matures.
- Retained equity. Again, some equipment financers offer non-dilutive funding, absent of warrants, covenants, and other equity-dilutive components that require lendees to give up shares of their business.
- Growth. Equipment financing can drive productivity, enhance scalability, and enable the lendee to reach milestones sooner because the cash they already have can be focused on growing their business.
How does it work?
Top equipment financiers will work with a lendee to get a handle on their company and equipment needs. They will then conduct due diligence to fully understand the financial scope of the business – where it is now, where it’s headed, and the associated risks of providing funding. CSC Leasing, for example, can offer funding on an asset-by-asset basis, or offer a lease line that can be drawn upon over a set term. CSC also offers a sale-leaseback, where it will buy equipment from a lendee that was purchased previously and lease it back to them, to inject some cash into their business or free up headroom.
Terms are flexible and range in length from shorter to longer-term, and are largely contingent on a company’s maturity, financial performance, and capitalization or liquidity.
Who should consider equipment financing?
Organizations, ranging from the earliest-stage startups to the most established enterprises, can benefit from equipment financing, regardless of their age, size, and liquidity. For example, startups that are raising equity can use equipment financing to build out a facility to advance progress on their product. Middle market organizations can preserve their cash for activities that drive sales. Large enterprises can streamline and reduce costs on a major tech refresh.
So, if you need to invest in equipment or technology, equipment financing is likely a solid financial option for you.