When You Should Finance Your Small Business Equipment
Owning equipment can make your balance sheet look good and give you certain freedoms, but purchasing equipment in full is not always optimal for your business. There are circumstances where financing small business equipment is better than buying. Here are a few examples to consider.
When You Are Starting Up
When you first start a business, you spend a lot of money right away. If you do not have enough cash to fully invest in your business, or if you are nervous about investing too much before you reach certain profit margins, equipment financing can relieve some of the stress and financial burden. You can finance anything from computers to heavy duty trucks. Keep in mind, you do not need to finance forever and can always purchase your own equipment later.
When You Need to Expand
When business is booming but you are struggling to keep up with demand, you may need to produce more products or hire new employees quickly. If you do not have enough cash on hand to buy the needed equipment, small business equipment leasing might be your best bet. You can lease equipment on a temporary basis, or you can continue to lease to avoid paying large sums of money or accruing debt. In either case, getting a lease is usually faster than applying for a loan or saving to purchase equipment.
When You Need to Make Big Purchases
When you need to purchase expensive assets or make a down payment on real estate, you might not have enough leftover cash to buy new equipment. Equipment financing options keep more cash in your pocket so you can prioritize other aspects of your business.
To finance small business equipment, you can take out a loan and eventually own the equipment or you can rent the equipment on a lease agreement. Leasing may be more advantageous, however. Lease payments are generally tax deductible, whereas you can only deduct interest on loan payments. Leasing companies typically take care of maintenance and repair, so there is less responsibility and cost on your end. Plus, you do not necessarily need perfect credit or a long-established business to get approved for a lease. Approval is less strict than traditional lending and subsequently faster.
Consult Your Lender
Talk to a small business equipment financing company about your business needs and whether leasing equipment is right for you. Ask about the funding options provided and carefully read all documentation before signing.