5 Things to Know Before Financing Business Equipment
As a business owner, you know up-to-date equipment is vital to keeping your business running efficiently. If trucks and vehicles are the equipment you need, you’ll have to choose between financing or leasing. Before you decide, you’ll probably have a few questions. For example, how do you know which option is best for you and your company? Will one choice have a better outcome than the other? While both options help defer the equipment costs, there are significant differences between the two.
Here are five things to know before you finance or lease business equipment:
#1 Difference between financing and leasing
When you decide to finance your equipment, you become the outright owner. Instead of purchasing in one lump sum, you are simply spreading out the equipment’s cost over time. This option can make things simple for everyone involved, as you don’t have to worry about upfront costs that could put a dent in your finances. You’ll make regular payments to pay off the purchase. After you finish your payments, you are the sole owner. When you lease equipment, you are paying for the use of the items rather than paying off the purchase. Simply put, the owner of the equipment is lending it to you to use, and you are paying them to use it. At no point do you become the owner.
#2 What your finances look like
Before reaching out to an equipment financing company, ensure you have your information in order. Review your credit report and purchasing history from both an individual and business perspective. The equipment financing provider will more than likely request this information, and having it organized will make things easier for you from the very beginning. In addition, take some time to compare rates and lease terms from various providers before deciding on one. Some institutions will have better rates or lower fees than others, so it’s essential to consider the options before you make a selection.
#3 How many applications you should fill out
You don’t want to send out multiple applications to dozens of companies. If a lessor happens to stumble upon a rejected application from one (or several) other companies, it will start to raise questions, and you will find yourself in a difficult situation. Choose an equipment financing provider that best meets your business objectives and goals and start there. If things do not work out with this provider, it’s okay to try another. However, stick to one at a time to avoid questions.
#4 How long you’re going to use the equipment
While starting the equipment financing process, think of your business model and how you’ll be using the equipment in question. For instance, a construction company might consider leasing equipment because as newer models come out, they’ll want to upgrade. However, financing may be wiser if you don’t need to upgrade your equipment consistently and your end goal is owning the equipment.
#5 Tax incentives
If you’re on the fence between financing or leasing equipment, know you can receive tax refunds if you choose to finance. Section 179 tax laws state you can take a same-year tax deduction for every dollar of equipment you buy or finance up to $1.8 million. So, you can potentially save up to 21% on the equipment you need to keep your business competitive. Both new and used equipment can qualify for these deductions.
Deciding to finance business equipment is a big decision that includes many steps. When you’re aware of the differences between financing and leasing before beginning the process, you’re already ahead of the game. All you have to do is stay organized and focused on one provider at a time, and you will avoid frustration and keep things simple for everyone involved!