It is exciting to start a new business, exhilarated at the hope of future success. Many times, new business owners are surprised at the amount of money they need to begin. It’s common for big dreams to become overwhelmed by small finances.
Depending on the industry of your new business, you may need heavy duty vehicles, numerous computers, industrials tools, or landscaping equipment. Your decision as to whether you should lease or purchase these items is usually based on your unique situation. This article explores the choices of equipment financing or leasing, looking at making this decision based on your short term and long term needs and budget along with any tax considerations.
Length Of Use
You may only have a short term or limited use for some of your business assets, depending on certain projects. After a project is finished, these asserts may no longer be needed. Alternatively, you may need some tools for the long term because they can be applied to numerous projects. This is an important factor in your choice to purchase or lease.
Leasing may be appropriate when the gear you require will only be needed for a short time. Instead of being stuck with expensive assets you don’t plan to use, a lease offers you an economical way to only use gear for a short time before returning it. When you’ll use gear long term, equipment financing is usually more appropriate because you will own it.
Advances In Technology
Many industries require businesses to upgrade their technology to remain competitive. For example, laboratories use tools and technologies that can be quickly outdated, causing the need for frequent replacements and higher expenses.
Alternatively, other businesses are less affected by advances in technology. For example, a restaurant can use the same equipment for years before needing replacement, as the technology doesn’t really change. Restaurant equipment financing is usually better than leasing for refrigerators, grills, and other restaurant equipment.
Considering Cash Flow
Cash flow is an ongoing challenge for many small businesses. If you have cash flow constraints in your business, leasing may provide you with more breathing room as you can get the assets you need to run your business without having to jeopardize your cash flow.
Equipment financing and leasing contracts have different implications when it comes to taxes. Usually, monthly lease payments will qualify as a deductible business expense which factors into the cost of the lease. Tax law treats most purchased assets on a scale of graduated deductions called depreciation. To determine whether equipment financing or leasing is best for your business when it comes to taxes, it is wise to consult a tax advisor.
If you need expensive equipment for your business, securing a loan from your local bank isn’t always the most advantageous solution. Consider your alternatives by speaking with companies that specialize in helping businesses obtain the equipment they need through equipment financing or leasing. By finding a company with flexible terms, you can preserve your cash flow and gain immediate access to the vital equipment your business needs to compete and profit.