Your Next Equipment Purchase
Cash, Loan Or Lease?
Nearly any type of equipment can be financed if it’s used for a business purpose. As you consider your purchasing options, ask yourself what are the best funding sources for your company.
- Business or personal cash
- Traditional bank loans
According to the Equipment Leasing and Financing Association (ELFA), 78% of U.S. businesses across all industries rely on financing equipment purchases through loans, leases and lines of credit.
When equipment stops working, so does your business. Reliance upon equipment for operations and income has made acquiring reliable equipment “mission critical”. Old worn out equipment and malfunctions that interrupt operations result in business income loss.
Cost vs Value
The value of equipment is not just the MSRP or funding costs. The real value of equipment is in its ability to get the job done, every day. Keeping your customers satisfied and your reputation in good standing is paramount.
It’s no secret, business equipment is expensive. Even smaller costs, such as routine maintenance add up quickly. For small business owners, equipment financing and leasing reduces the upfront financial burden of buying or replacing business machines of all kinds, be it a loan or a lease. But the real secret is which lender relationship best aligns with your business strategy and is focused on your long term growth? And of course, who has the most favorable terms.
If cash flow’s a challenge, so is maintaining your business. If you lease or get a loan, you can preserve cash and build credit, which is very important for many small businesses. Consider whether it’s necessary to use business or personal cash to purchase equipment.
Equipment Financing vs Equipment Leasing
Equipment financing and leasing are two ways to acquire new equipment for your business. Both have their own advantages and disadvantages, so it’s important to understand the differences before you decide which one is right for you.
Want to own that new or used machine right away but pay for it over time? Financing is a loan that allows you to purchase equipment outright. Once you’ve repaid the loan, you will own the equipment. This means that you will have the flexibility to use the equipment as you see fit. With more control over the equipment, you can customize it to meet the specific needs of your business. However, you may need to make a down payment and it could be more difficult to obtain if the equipment is outdated or hard to sell.
- Equity and ownership is the key benefit
- Quickly put your equipment to work and build equity simultaneously
- Possible down payment in the form of cash or equipment
- Choose from flexible payment plans — including skip payments on monthly schedules for qualified customers
Leasing is like a rental agreement that allows you to use equipment for a specified period of time. You do not own the equipment and do not have the option to sell it once the lease is up. At the end of the lease, you have the option to purchase the equipment, but you are not obligated to do so. This means that you may avoid the upfront costs of an equipment loan and you may also be able to get lower monthly payments.
Instead of purchasing your equipment outright at the point of sale, you may ‘borrow” it for a set period of time. Leasing is a good option if you plan to own the equipment but need more flexible payment terms or if you replace with new equipment at the end of the lease.
It’s a good option for businesses with limited cash on hand or those that need to preserve cash for other purposes. Discover a variety of lease options.
- Flexibility frees your cash flow for other expenses
- Monthly payments are often less than a traditional bank loan or short-term rentals
- Monthly, quarterly, semi-annual, annual and skip payments are available for qualified customers
- Choose your lease terms – You can lease equipment for extended terms up to 60 months
- You’re not paying the full value of the machine – only the time you use it
- Ability to upgrade to newer machinery at conclusion of lease
- 100% financing is available
- Section 179 tax benefits
- You often have options at lease-end: return, purchase or extend the lease
Which Is Right For You?
The best way to decide which option is right for you is to consider your specific needs and goals. If you need to own the equipment outright and you have the cash flow to make monthly payments, then equipment financing may be the better option for you. If you need more flexible financing and you are not sure how long you will need the equipment, then equipment leasing may be a better option.
Conserve Cash Flow
Equipment financing and leasing frees up cash for capital and operating expenses. Given the current economic climate, retaining capital and having cash on hand is paramount to a business’s success.
Quick access to equipment funding ultimately results in increased business activity and revenue growth.
Dependent upon a good credit score, the requirements for equipment financing and leasing are often more flexible than conventional bank loans.
Making on-time payments will have a positive impact on your business credit score.
Hedge Against Inflation
Payments may be fixed for the entire term of the loan or lease. When adjusted for future inflation, the net cost will actually decrease while gross revenues generated by the equipment increase.
Lease To Own
You may own the equipment outright or be able to purchase it at the end of the lease.
Write off the entire purchase price of qualifying new and used equipment in the same tax year that it is placed in service. You could be able to claim a deduction of up to $1,080,000 in 2023. Information on tax benefits of leasing.
Qualify For Financing
For most lenders, borrowers can generally qualify with at least one year in business, $100,000 or more in annual revenue, and a credit score no lower than 550 to 600. The better the credit, the better the terms. Lenders will want to discuss your business plan and your personal and business financial statements.
The qualifications for equipment financing vary among lenders, but there are some general requirements that most lenders will look for. These include:
- A good credit score. A credit score of 600 or higher is generally considered to be good, but some lenders may accept scores as low as 550.
- Adequate cash flow. The lender will want to see that your business has enough cash flow to make the monthly payments on the loan.
- A solid business plan. The lender will want to see that you have a clear plan for how the equipment will help your business grow.
- Collateral. The lender may require you to put up collateral, such as the equipment itself, to secure the loan.
In addition to these general requirements, some lenders may also consider other factors, such as the length of time your business has been operating and the amount of experience you have in your industry.
Business success is all about choices. Choosing a financial partner that understands your business is the best place to start. Commercial Capital Company provides opportunity for companies to acquire new and used equipment without sacrificing their cash flow. We guide local small business owners through the commercial credit process by listening to their goals and structuring financial solutions that promote growth.
It all starts here.
Equipment leasing and financing can be a great way to grow your business. To speak to a financing consultant contact us.
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