A Brief Overview of Equipment Financing
Having the necessary equipment to keep your business moving and growing can be a bit of a financial headache. Equipment, from cars to computers, can be extremely expensive and often sucks up loads of additional money through repairs and upgrades. The financial conundrum makes equipment financing a strong solution, provided you know what you’re getting into.
Lease or Buy?
For some, the idea of spending money every month for a piece of machinery that’s owned by another company seems foolish. However, when you think about the costs and risks you avoid with equipment leasing, your outlook changes a bit. Repairs and depreciation are two of the biggest downsides to owning a rig, and those factors are eliminated with a lease. Depending on the terms of equipment financing, you might able to arrange a short-term lease so you aren’t stuck with an aging apparatus.
Start by looking at your monthly revenue and thinking about how that number might change with the new machinery. If it will take a significant amount of time for your business to reap the rewards from the new equipment, the cost of a lease might not make sense. However, it’s probably fair to say that buying something outright wouldn’t fix those financial problems. Whether you lease or buy, you have to do an extended forecast and try to estimate how the new item will affect your bottom line.
There are other issues associated with equipment leasing that deserve attention. How the lease will affect your credit, and whether or not your credit is good enough to get decent terms, are very important questions. Good credit will make a huge difference in how cost-effective it is for you to finance equipment, as you certainly don’t want to get saddled with an interest rate that forces you to lose money each month.
The type of equipment is also important, as some instruments need to be upgraded more regularly than others. If you work in a field that’s constantly updating, financing might allow you to keep up with the changing times. Many leasing companies allow business owners to trade equipment in for newer models and rework the financing terms, which can be very beneficial.
Like with all business matters, there are plenty of things to deliberate when it comes to equipment financing. What’s most important is that you not rule this option out because you believe it’s inherently more expensive than buying. In many cases, a good lease can save you a lot of capital in the long run.