Capital equipment financing or leasing helps you swiftly get equipment while keeping operating cash available for other strategic objectives. Leverage your assets. You can utilize the equity in your current equipment as collateral for a secured loan, or you can use freshly bought equipment as security. When should I lease equipment? Give the concept a reality check before you start thinking about alternative ways to bring in new equipment, whether by leasing, borrowing, or even paying cash. Ask yourself the same questions that you would ask a leasing firm or a lender:-
• Will the equipment fulfill a critical business requirement that is now unmet? • Does the expense of maintaining and inefficiently using the kit I presently have justify purchasing new equipment? • Is this a good time to buy new equipment because of market “specials”? • What role does the new equipment play in my long-term company strategy? • Is it possible that if I wait a little longer before purchasing new equipment, more sophisticated versions will become available, giving my company more bang for its buck? • What is the projected return on investment for my investment?
Difference between Leasing and Financing equipment? You are effectively borrowing equipment when you lease it. Equipment “financing” involves borrowing money from a lender to purchase equipment. You are the owner of the equipment. Both techniques have advantages and downsides.
A third option is to purchase company equipment altogether rather than borrowing or leasing it.
Pros and Cons of Equipment financing?
PROS:-
• You might be able to borrow all of the money you need to buy the equipment without making a down payment, depending on your financial situation. • You may be able to claim tax benefits such as Sec. 179 and loan interest deductions as the owner of the financed equipment. • If you have a loan, you can pay off the principal sum without penalty if you wish to. It lowers the overall interest you pay and, as a result, the cost of purchasing the equipment.
• If you own the equipment and can pay off the loan, you have complete control over how you dispose of it.
CONS:-
• If lenders feel you're taking on too much debt by borrowing to buy equipment, it may limit your capacity to borrow for other purposes. • On your balance sheet, an equipment loan displays as a liability. • Before you pay off the debt, the equipment may become outdated. • Depending on the size of your down payment, the lender may want additional collateral to secure the loan, such as personal assets, in addition to the equipment being financed. As a result, the equipment may depreciate more quickly than the loan's amortization plan.
Cost of Financing?
Capital equipment financing has a range of costs. These are the elements that influence the price:
• The equipment's market worth.
• The condition of competition in the market for lessors that specialize in businesses is like yours.
• The interest rate situation.
• The allocation of credit and obsolescence risk is between you and the lessor.
• Which party receives tax benefits is determined.
