We’ve all faced the decision of whether to finance something or purchase it outright—maybe when buying a car or another big-ticket item. When it comes to your business, however, the stakes get significantly higher when you are considering whether financing or purchasing equipment is right for you.
The answer to the finance or purchase question is not going to be the same for every business owner, but the advantages and disadvantages of financing rather than purchasing will always be the same.
Advantages
The biggest advantage of financing business equipment is that only a minimal initial expenditure is required. But that isn’t the only advantage; others are:
- Payments are usually tax deductible.
- Leases are usually easier to obtain and their terms are more flexible than those included in loans for making purchases.
- It can be easier to overcome obsolescence, as you can upgrade to the “latest and greatest” when your lease term expires.
Disadvantages
Of course, there are some disadvantages of financing business equipment that need to be considered:
- Leasing is almost always more expensive than making an outright purchase.
- Since you don’t own the equipment, you’re not building an equity.
- Even if you stop using the equipment before the end of your lease term, you have to make all the payments — or perhaps face a sizable early termination fee.
Equipment financing checklist
To help you determine whether financing or purchasing equipment is the right option for you, use this equipment financing checklist:
- What equipment do you need and for how long?
- What is the total payment cost?
- Is the equipment you’re looking to lease subleased?
- Do you understand the terms and conditions during and at the end of the lease?
- Who is responsible for repairs?
- Are there options to upgrade or trade-in equipment?
- Do your business’ future needs require different or newer equipment?
- Can I deduct my equipment as a business expense?
- Will my equipment be obsolete by the end of my lease?
- Are my leasing terms flexible?
The Takeaway
The unique needs of your business will determine whether equipment financing or purchasing is the right move for you. It’s best to do your homework—starting with answering the questions in our equipment financing checklist—before you sign on any dotted line.
Want to discuss equipment financing with experts who’ve helped countless businesses over the years? Contact Clear Skies Capital at 1-800-230-9822 or visit us online to learn more.