Financing Business Equipment:Should You Use Lease,Borrow,Use Credit Or Pay Cash?
Does your business need to purchase new equipment?
Not sure whether to finance or just pay cash?
If you don't quite know the difference between a lease and a loan or you don't really understand the tax benefits associated with funding business equipment don't worry because you're not alone.
You can spend countless number of hours on the internet searching for companies that offer financing but first you should determine which purchase option works best for you.
Whether you're financing office equipment, financing business supplies, or financing business equipment there are certain benefits and strategies associated with each type of option.
So in order for you to get a much greater perspective on how you should purchase your company's business equipment let's compare the difference between leasing, getting a loan, using credit, or paying cash.
Equipment Leasing:
*Interest rates are fixed
*Fast approval is usually within days
*Down payment is low typically only 1 or 2 payments upfront
*Leases under $150k usually do not require financials
*Lease payments are 100% tax deductible when you show it as an operating expense
*Equipment does not become obsolete because you don't own it
Getting a Loan:
*Interest rates can fluctuate which can become costly
*Approval can take weeks
*Down payment of 10-20% of the total amount is typical using up your company's cash
*Financial statements are required
*Depreciation can be taken over the useful life of the equipment
*May need to purchase new equipment in the future as existing equipment becomes obsolete
Using Credit:
*Interest rates are variable and sometimes fixed
*Approval can take weeks
*Requires 10-20% down on the total purchase amount
*Financial statements are required
*Can use depreciation over the useful life of the equipment
*You own the equipment so it can become obsolete in time
Pay by Cash:
*No interest
*Instant purchase with no approval period
*Requires 100% of equipment purchase amount using your company's cash reserves
*No financials required
*Depreciation can be used
*You own the equipment outright which can become obsolete in time
So if you prefer to conserve your company's cash some of the most popular equipment you can finance includes computers, office equipment and furniture, heavy machinery, dry cleaning equipment, medical equipment, printing presses, fleet vehicles, and restaurant equipment.
Did you know that over 80% of businesses in the U.S. lease at least one of their equipment acquisitions?
Leasing has become the preferred method for funding business equipment because you can conserve your cash, realize greater tax savings and avoid the risk of your equipment becoming obsolete.
So whether you decide to purchase or finance your next piece of business equipment use this post as a resource to help you in selecting the right financial strategy for your company.
Questions and Answers
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