A cost-effective solution to purchasing pricey items is equipment lease financing. Equipment lease financing essentially refers to funds borrowed from a lender that can be used as payment for an equipment lease. By borrowing money to lease equipment, you can acquire necessary tools for your business, while also being able to afford other expenses (thus improving cash flow).
To learn more about equipment lease financing, read this post!
Why Should Your Business Pursue Equipment Lease Financing?
1. Lower Costs Upfront
To successfully start a business, you need high quality, functional equipment. For example, you might require laptops for your online business, or
lawnmowers and pickup trucks for your landscaping company.
Small business owners that are just starting their ventures must adhere to a strict budget. Until you know the amount of sales you’ll be earning, you should avoid spending too much money on equipment.
Still, you need equipment to perform your duties. So, to save funds, consider an equipment lease. You’ll be able to receive the piece of equipment you need but won’t have to permanently purchase equipment.
2. Eliminate Replacement Costs
It’s important to keep in mind that some types of equipment can become obsolete after a few years. Especially when considering electronic equipment, companies such as Apple and Microsoft are constantly improving their products. Because of evolving technology, you might need to replace certain equipment to ensure that your business operates as efficiently as possible.
Purchasing these tools at full cost every few years is going to drain your cash flow. Instead, consider equipment lease financing as a flexible option to easily upgrade equipment as needed with minimal cash outlay.
3. Reduction in Taxes
A third reason to lease equipment for your small business is the tax deductions you can make.
Per
Investopedia, Section 179 of the United States Internal Revenue Code was introduced as an “expense
deduction that business owners can take for purchases of depreciable business equipment.” With this tax law, businesses can deduct the amount of the equipment lease to reduce the taxes they owe. Being able to pay less tax leaves extra dollars in your company’s bank account for other pursuits.
4. Predictable expenses
According to
Entrepreneur, leasing equipment allows for predictability in your monthly expenses. With a lease, you know how much your monthly lease payment will be, so you can budget for this. When purchasing equipment, you'll have a hefty cost upfront. In addition, there could be unknown future expenses if your equipment breaks or needs to be upgraded.
Knowing what to expect from an expense perspective is crucial for maintaining profitable operations.
5. Changing Business Priorities
As a business owner, it’s important to be agile in today’s competitive market. If new and innovative ways of conducting business are introduced in your industry, you should adapt. If that means disposing of antiquated equipment, and acquiring improved versions, leasing is the most cost-effective option.
With leased equipment, you can end your current lease and use your financing to fund brand new equipment. If you have purchased equipment you may not be able to resell it. Therefore, you might not have the funds available to purchase new equipment.
Are You Ready to Pursue Equipment Financing?
It’s clear that businesses looking to expand operations can benefit from leasing equipment instead of buying. Leasing gives business owners the flexibility to obtain new equipment without spending an inordinate amount of money.
If you want to apply for equipment financing, take time to research leasing companies that meet your business's needs. Compare their pricing and other factors to determine the best option for your company.
On the flip side, if you've already received equipment lease financing, let us know in the comment section below! Tell us about how this type of working capital has benefited your business.
Editor’s Note: This post was updated for accuracy and comprehensiveness in May 2019.