Loans or Leases: Understand Your Equipment Financing Choices
When it comes to accessing new equipment, both leases and loans have their advantages. While some small business owners always swear by one or the other for various reasons, those looking to maximize a company’s profits will learn when the best choice for equipment financing is a lease and when it’s a loan. That’s because each product has unique advantages, so each is best used under different circumstances.
Financing for Major Equipment Purchases
Most businesses have some machines with short life expectancies and some with long ones. Typically, the most expensive machines are also the ones with the longest life, so the investment is worth the approval times associated with loans and the additional tax paperwork for depreciating investments. The trade-off is the opportunity to reap profits from the work of that machine for years after it is paid for. This is a great option for vehicles, CNC machines, and other long-term purchases.
Leasing can cover those equipment costs, but at the end of the lease term you either renew and keep paying or you wind up losing access to the machines. That is why loans are the right equipment financing choice if you can fund them. Still, sometimes the loan comes with down payment requirements or other criteria that make it hard to work with, and then a lease can be a great resource even for your most important equipment.
Financing Machines with Short Operational Lifespans
Computers and other IT devices are just one category of machines you need to replace every few years because of obsolescence, but they are an easy category to identify. If you already have to plan to purchase a new computer at the end of a loan period, it makes more sense to lease it, save a little money, and lower your tax burden.
Leasing equipment means you do not have to worry about disposing of it after upgrading. In fact, with a lease, it can be as easy as refusing to renew an old machine’s lease and then contracting for the new model. Your leasing company takes care of everything else, which makes it an ideal form of equipment financing for any situation with regular upgrades every couple of years.
Make the Right Choice for Your Business
If you have the capital on hand to choose between financing with loans and leasing, it makes sense to call it on a case-by-case basis. Not only do you save money, but you also make it easier to manage your company’s resources in the long run too.