There are many important facts to know before obtaining equipment, but one of the most critical is whether you’ll be buying equipment outright or leasing it. If you think that doesn’t really matter, read on. If you’re looking for small business loans for equipment financing, this blog will help you determine whether you should lease or buy.
Small Business Loans for Equipment Financing or Buying Equipment?
Buying seems like the most simple and straightforward option. Who doesn’t want to just buy a piece of equipment and own it outright, after all? Well, your business might not want to, actually. It turns out there are some significant downsides to buying a piece of equipment outright, whether it’s just an iPad for your restaurant business or a dump truck for your construction company.
- Price. The average business isn’t flush with surplus cash much of the time, and that’s really what it takes to be able to buy a major piece of equipment outright. That purchase might leave you with dangerously low cash and problems down the line.
- The end. When a piece of equipment breaks down or outlives its useful life, you can’t just give it back. You’re stuck with the costs of repair and the hassle of trying to sell or junk the equipment once its useful lifespan has run out.
There are considerable advantages, nonetheless. Ownership of equipment can be a very nice thing, and knowing you don’t owe money and have to pay interest on that forklift can give you considerable peace of mind and save a little cash over the long haul. When your cash reserves are extremely high or you have large business lines of credit it may make sense to consider paying cash but most savvy business owners still prefer to lease even if they know the benefits of unsecured business lines of credit or a small business loan and have large cash reserves. Sometimes it’s not even the pro’s vs. cons argument that makes your decision…often it’s just knowing that you can always afford the monthly payments and even if business gets real bad you can dip into your reserves. After all, if business does get really bad you’ll wish you could go back and exchange the cash you used to pay for the equipment for a monthly payment. The risk factor will lean you toward financing in most cases.
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Leasing Equipment Instead of Small Business Loans for Equipment Financing
For your average business, though, leasing will hold more appeal. The reasons for that are simple enough.
- Options. A typical equipment lease allows you to either forfeit ownership at the end of the lease or buy out the equipment. This is useful because you’ve been using the equipment and can decide whether it’s still in good enough condition to be useful, or if you want to walk way and leave the lessor with ownership concerns if it’s nearing the end of its useful life. This is especially useful when dealing with technology, which can rapidly become outdated.
- The upfront cost. With a lease, the upfront cost is often minimal, and the ability to make monthly payments certainly takes heat off your bank account. Interest increases the long-term cost, but for the average business, the flexibility of a lease just makes more sense.
You should always be sure you’re getting the best terms on a lease that you possibly can, but I’d encourage any business considering obtaining equipment to check out leases (and small business loans for equipment financing). At the end of it all, it will do much less damage to your finances up-front and make payments more manageable. That’s a beautiful thing. Ideally, you would have some cash reserves along with your business line of credit or business lines of credit combined with a growing revenue number and a bottom line that is increasing. Leasing will normally help you get to that end goal quicker than paying cash as long as you’re a good decision maker and are good at paying your bills on time.
Do you prefer to lease or buy equipment?