Equipment financing is a possible option if you need equipment for your business. Whether your business is big or small, or if you are just starting up or already established, you need a way to get your hands on the equipment that serves as the life blood of your company. This equipment can be computers, machinery, cars, or the like. Most companies do not have the ability to buy the necessary equipment outright, so other options are available. One of these options is equipment financing, and here we offer the pros and cons to help you decide if it is the right move for your business.
Equipment financing usually offers the lowest interest rates.
Once you are done paying your loan, you will own the equipment. From there you can choose to do what you would like with it, whether you keep it, sell it, or lease it.
The interest you pay on your loan is tax-deductible.
Financing your equipment means there will be no hidden fees or contractual obligations as with a lease.
Loan agreements are more flexible than leases, and less complicated, offering early buyouts and lesser penalties.
Financing interest is often cheaper than lease interest.
You will be the owner of valuable equipment once you finish paying your loan.
Financing will give you the ability to own and use equipment you otherwise wouldn’t be able to afford.
Monthly payments can often be deducted as business expenses.
Financing allows you a line of credit for other business expenses.
By the time you are done paying your loan, you will have paid more than the original price of the equipment because of the interest. A piece of equipment that cost $4,000 up front might end up costing you $5,500 by the time you are finished paying your loan.
If you’re a new business, your personal credit will be taken into account when deciding if you are eligible for the equipment loan.
When you finally do pay off your loan, the equipment might be outdated and/or unusable, leaving you with a poor investment and the burden of having to try to make some money back on it by selling it or leasing it.
Your down payment is higher than if you lease.
Only your interest will give you tax deductions, but not the loan itself.
Any maintenance or unforeseen issues are your responsibility, and you could end up paying more out-of-pocket in this case.