Equipment Financing: A Flexible Option to Expand

Companies can implement equipment financing strategies to mitigate challenges in the marketplace or secure capital to purchase or lease equipment they need to serve their customers and grow their business.

Prepare to move quickly when opportunity strikes

Focus on longer-term growth. Establish a line of credit and take advantage of low interest rates now so that you can place orders to purchase or lease equipment or inventory as it becomes available.

Invest in the direction your business is going

Equipment is going to be vital to your ability to expand your capabilities, keep your systems current and bolster your IT infrastructure, as well as security. Leasing can be a powerful option to stay nimble when investing in emerging technology because a lease can be structured for your unique situation. For example, a lease may only require partial payments while you are getting new systems up and running and are not yet seeing a return on the investment. It also may mitigate risk that the equipment you buy today could quickly be rendered obsolete by new developments.

Focus on affordability

In addition to repair costs and regular maintenance, in today’s environment, companies are updating their vehicle fleets for many reasons, including to: attract quality drivers; meet increased online ordering and delivery demands; improve efficiencies; and satisfy clients’ strict hauling requirements. Leasing can make meeting these demands more affordable. Choosing a Terminal Rent Adjustment Clause (TRAC) lease allows you to only pay for a portion of the truck, which keeps the monthly payment low. This option also comes with a buyout at the end of the lease, and in most cases, your payment is based on 75 percent of the unit selling price, providing a more affordable solution. Consult your accountant about other potential tax benefits.

The decision to choose a loan or lease often depends on the nature of the inventory or equipment being financed, the borrower’s ability to obtain a loan at favorable terms and the goals of the business. There are many reasons to consider leasing.

Benefits of equipment leasing:

A lease is typically 100 percent financing, so it can allow the capital that would have been tied up in a purchase of new equipment to continue funding other business and growth-related expenses. Lease payments generally are tax deductible as business expenses. If you do not intend to purchase the equipment at the end of the lease, you can deduct the payments as a regular business expense. The Internal Revenue Service (IRS) permits you to claim depreciation on leased equipment if your contract is a lease-to-own arrangement. Depreciation gives you more control over your finances by allowing you to deduct the total cost of an expensive asset that you bought for your business over time.

Purchasing equipment:

There also are many advantages to purchasing equipment. One of the primary benefits is that, in addition to owning the asset once the loan is paid off, the previously purchased equipment can be used as collateral for a down payment to obtain more favorable loan terms when financing future expansion. Additionally, if purchased outright, there is no additional cost to ownership through interest expense.