When acquiring equipment for your business, what is the best route? Is the average equipment interest rate better for leasing or for a bank loan?
Whether you’re running a restaurant or a delivery business or a plumbing company, one of the first items on your list is equipment. Businesses need good, well-running equipment to be successful, because that’s how they provide such quality service.
However, getting this equipment can be another matter entirely, especially when your company is just starting. With limited funds and such a tight budget consistently, how can you acquire up to thousands of dollars worth of equipment and make sure that it is of high quality?
The answer lies in alternatives besides purchasing normally, especially for capital equipment (equipment that is fairly expensive). Purchasing has its advantages and disadvantages, and figuring out the best time and place to buy your equipment is important.
However, taking advantage of alternatives like leasing and financing can be much more helpful by providing you with a long term solution. There are many factors to both, and there are times where it’s preferable to do one versus the other.
For example, looking at the average equipment interest rate, which is the better choice for a business? Which is more inexpensive in the short run versus the long run?
And what happens when your equipment breaks, or when you’re due for an upgrade?
How Purchasing Equipment Works for a Business
There are advantages to purchasing equipment, mainly in the sense that once you buy it you don’t have to really worry about payments for a while. Plus, purchasing allows you to get some funding if you claim the equipment as a business asset.
You get to own the equipment and essentially do whatever you want as far as using the equipment for the benefit of your business. However, this doesn’t always last for your business.
For example, depending on the equipment, it only has a certain lifespan, and after a while it will need to be replaced, either due to a lack of quality or due to breaking. With some equipment, like wrenches and hammers and smaller tools, it’s no issue at all: it’ll last quite a while before needing to be replaced despite steady use, and it’s inexpensive to replace.
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However, with more expensive, intricate equipment, more can go wrong and the equipment can break down much quicker. Plus, how are you going to replace that equipment?
Generally that kind of equipment breaks within a few years of you purchasing it, meaning you’re spending the same large sum of money again to replace it within a short period of time from the first purchase.
Bank Loans and the Average Equipment Interest Rate
Purchasing is generally better in businesses if either you are buying smaller equipment or you have more than enough money coming in to deal with paying to replace the equipment down the road. Bank loans are a little trickier, and generally depend on your credit score.
You get loaned a certain amount of money, and you have to pay that amount back with interest. The average equipment interest rate is a percentage of the amount you loaned based off of credit score and other various factors.
However, even if you have a low credit score and loan a large amount of money, the interest you accumulate will be fairly large. That’s why loans are generally best done in situations where you know for sure you can pay them off quickly, especially if the equipment doesn’t have much longevity.
Last thing you want is to have a loan accumulating interest and then your equipment breaks and you have to pay to replace that, letting the interest rate grow even more.
The Average Equipment Interest Rate in Leasing
Leasing basically is advantageous where purchasing is disadvantageous, giving you an effective way to get expensive equipment without having to put yourself in trouble financially. With a lease, you pay a monthly rate for the loaning of equipment for a specific period, which can be continued and renewed if you choose.
The average equipment interest rate for leasing is null because standard leases offer flat rates, and they’re fairly low as well. That way, you can afford to acquire the equipment you need and don’t have to worry about an interest rate or heavy payments causing you problems.
Plus, leasing solves issues business owners run into over time with equipment: wear and tear. With a lease, business owners get their equipment repaired any time it breaks down without having to pay a large sum of money to actually replace the equipment.
To learn more about the average equipment interest rate with leasing and financing, click here.