When you buy equipment for your business, you have to do a fair amount of research about the best products on the market and shop competitively. You also have to be strategic about the best ways to fund your purchase. A financing agreement could help you afford to purchase high-quality, capital equipment cost-effectively.
Put Equity Into an Asset
When you lease equipment, you have to make considerable monthly expenditures for its use. While there’s certainly something to be said for the value of equipment’s function, you’d rather have those payments go towards building equity in a fixed asset. With a lease, you’re paying for something that’s here today and gone tomorrow. With equipment financing, you’re paying for a vested interest in commercial property.
If you maintain equipment well and protect it with an extended warranty or service contract, you could get years of service out of it. A costly lease might terminate in three years, but a financed purchase could allow you to use the equipment for the full duration of its operable lifespan.
Small businesses have to be savvy about itemizing and calculating deductible expenses. When a fixed asset depreciates, you’ll probably be able to claim the depreciation as a deductible expense on your corporate tax return filings. There isn’t any comparable tax advantage for the depreciation of equipment that you’ve opted to lease.
Even if a piece of equipment or machinery that you rely on heavily has lost some of its utility, there isn’t any way to account for this loss in your taxable expenses. The only way that the devaluation of leased equipment is going to result in reduced tax liabilities is if that equipment performs so poorly that it hurts your operations and causes you to earn less taxable revenue.
Buying an expensive piece of equipment outright is a risky proposition for a business with limited resources. While you won’t have to make ongoing monthly payments, the working capital that you’ve parted with to buy it might be sorely missed if you have to deal with an increase in your operating expenses or your revenue declines.
Equipment financing can facilitate affordable purchases that fit into your long-term budget plans. Rather than making a huge expenditure to buy something, you can spread the payments out. That allows you to make manageable payments every month and avoid overextending yourself.