Equipment Leasing Versus Financing

The costs of business equipment and machinery can add up quickly. Even if you only need computer and phone systems, you could be looking at thousands of dollars in expenses. When you own a small business, these costs can be prohibitive. Therefore, if you need business equipment, you have probably debated the benefits of leasing versus financing it.Leasing Your EquipmentEquipment leasing allows you to reduce your initial outlay on equipment. First, you don’t typically have to come up with a down payment. In addition, your payment should be lower than that of a loan or line of credit. Also, your payment terms are flexible. Therefore, you can set up your lease to make weekly, monthly, quarterly or even yearly payments. You can also take your lease payments off on your taxes as operating expenses, so the full amount you pay every year is deductible from your taxable income.Leased equipment can also be easily upgraded to new machinery as soon as your lease is over. This allows you to remain at the forefront of technological advancement without the high cost of purchasing new equipment every few years. Because you aren’t purchasing your machinery every few years, your cash flow is not tied up in it. This allows you to focus on paying your regular operating expenses, such as salaries, inventory, and other monthly bills.Equipment leasing companies also work in specific industries and with companies with unique characteristics. For instance, if you are a new business, you may find it difficult to get a loan for your machinery because you don’t have strong credit or financial history, but some leasing companies work with new businesses specifically. In addition, because they are industry-specific, these lessors can guide you in your equipment choices and let you know about upcoming technological advances so you can make the best decision for your company.Financing Your EquipmentWhen you finance your equipment, you will typically work with a traditional finance company. However, some equipment manufacturers also offer financing options, which prevents you from having to come up with the full price of the machinery upfront. Typically, lenders require a solid credit history and a record of your financial history, but because your equipment is used as collateral for the loan, you may not have to have the best credit or financial history.You may also experience tax benefits. First, all your machinery can be depreciated over time, but if you need immediate tax deductions, you can deduct up to $500,000 in the first year, making your equipment tax-deductible.Only you can make the decision between equipment leasing and financing. Weigh the pros and cons of each option to find the one that is best for you.