When you lease equipment for your business, how does your business garner advantages that other companies don’t have?
All companies have some sort of need for equipment, whether they need smaller, minor hardware or heavy-duty, capital equipment. Generally, getting capital equipment (anything more than $5,000) is extremely challenging to get, because paying for and maintaining it can be such a headache for a business.
It’s not as easy as just dishing out the money and getting the hardware you want; generally equipment like that will cost you over time. However, your business needs that equipment and you want the highest quality you can get of that equipment.
Sometimes it is effective to just purchase the equipment, and other times you need a little help to get the equipment you want. Generally the two routes businesses can take are getting a bank loan or getting a lease to afford the equipment.
Since you’re limited on the capital you have and your business will take some time to get off the ground, you want to avoid high payments as long as possible so you can focus on growing your business, but how can you do that?
Should you be purchasing equipment for your business using a bank loan and paying it off when your business is in a better place? Or should you lease equipment for your business?
Process of Purchasing
Buying your equipment depends completely on what you need, and the best example is by looking at personal purchases you have made. Consider anything you’ve bought for your home, like utensils or dishes, or a refrigerator or microwave, all hardware that would be used by a restaurant.
Equipment like utensils and such is very inexpensive (especially compared to an oven or microwave) and can last quite a bit of time because it’s not a complicated form of equipment. Even if it breaks or becomes damaged, which generally doesn’t happen for a long time, a brand new replacement is a quick, easy purchase away.
This changes completely with something like an oven or microwave, where the initial purchase is far more costly. In addition, the equipment is fairly intricate and complex, and it’s guaranteed to break down fairly quickly depending on how often you are using it.
At this point, you’ve got to dish out that same amount of money to pay and replace the equipment, and for your home this isn’t an issue. If your oven breaks every few years and you pay to replace it once every few years, it’s really no big deal.
For a business, when you have to pay for five to ten ovens, purchasing becomes more detrimental.
Advantages and Disadvantages of an Equipment Purchase
There are advantages to purchasing your equipment, mainly in the form of you getting some funding by claiming it as a business asset. Still, many businesses don’t want to deal with paying a huge sum of money again a few years down the road after already paying so much the first time.
Many business owners are already strapped for cash, having spent so much capital on starting their business fairly recently and still trying to recover financially while growing their business. Plus, if you took out a bank loan to pay for this equipment, your life can get even more difficult depending on what you get.
If your interest rate is relatively low and the amount you loan is low, then the interest accumulated won’t be too severe and you can set up a plan to pay off the loan within a few years.
However, with capital equipment, you’re paying a lot for the equipment, meaning your interest will accumulate much faster than with a smaller amount of money loaned.
Plus, what happens if your equipment needs to be replaced and you still haven’t paid off your loan? You’re either spending surplus funds to get new equipment, stalling paying off the loan, or forced to take out another loan.
Advantages when you Lease Equipment for your Business
Many business owners do not realize how beneficial it can be to lease equipment for your business, both in the short run and in the long run. You’re not paying for equipment, you’re paying for a service, and in a much more manageable way for your company.
With a lease, you pay a monthly rate to have equipment loaned out to you as well as for a handful of other services. The rate is flat and low, meaning you don’t have to worry about interest rates coming back to haunt you or high payments draining the capital you have.
With a lease, you can allocate funds to other parts of your business much more effectively when starting your company. Plus, leasing provides you many advantages in the long run as well, giving you the benefit of having equipment repaired whenever it breaks without having to pay to replace the equipment.
Leasing also offers you benefits like a tax benefit, putting money in your pocket come tax return time. You can even get equipment upgraded during the lease or if you renew a lease, or you can purchase the equipment at the end of the lease at a haggled rate.
There are many reasons to lease equipment for your business, but financially it’s a fairly wise choice, especially when dealing with capital equipment.
Instead of overspending to get equipment that won’t last forever, you pay a manageable rate to get a permanent solution for your equipment need. To learn more about how you can lease equipment for your business, click here.