Equipment purchases are critical to the continued growth and prosperity of businesses that are capital-intensive. An equipment purchase isn’t just a matter of going out and getting a loan to buy a few trucks or machines. Equipment financing needs to be properly planned to give companies the best possible advantage in terms of opportunity, growth, and tax considerations.
When planning for a big equipment purchase, companies need to have an eye on the future with regard to usage, cash flow, and financial goals.
When and for how long the equipment will be needed is a major consideration when seeking equipment lease agreements or loans. For equipment that will only be needed on a short or mid-term basis, leasing equipment may be preferable to purchasing it. A lease will likely be less expensive and will not saddle the company with equipment it does not need and must sell afterward.
Obsolescence is another concern for companies purchasing equipment. If the equipment is likely to be supplanted by significantly improved models in the near future, a lease may be the better option, as the equipment will revert to the lessor at the end of the agreement, leaving the lessee free to lease newer equipment.
The company’s cash situation will also play into whether financing through a lease or loan is the superior alternative. Companies that are cash-poor may be better served by an equipment lease agreement, as 100 percent financing is typically available for equipment leases.
The company’s individual tax and financial situation is also an important long-term consideration for equipment purchases. Loans provide companies with tax depreciation benefits. Leases may allow lessees to expense payments. Some companies may be unable to use the depreciation benefit, so instead it makes sense for them to lease the equipment instead.
Leases also provide financial flexibility for companies. Leases can be written to account for a number of contingencies, such as early termination, extended leases, rent-to-own, and more. For companies looking for a flexible means of planning for their capital needs, leases may be a superior option.
How much credit your company will need for other expenses is also an important factor to take into consideration. In many cases, you can preserve your credit by leasing through an equipment leasing company, allowing you to borrow from traditional lenders for other needs.
When purchasing equipment, it’s worthwhile to discuss all the options, and your future needs, with your accountant and experienced equipment financing professionals. They can help analyze your company’s situation and future needs, and devise a financing plan that gives your company the equipment and the options it needs to grow.
Nations Equipment Finance provides a variety of equipment financing options for companies seeking an affordable way to gain access to quality equipment. Nations Equipment Finance typically provides loan and leasing agreements ranging from $1 million to $50 million, with three to seven years’ repayment. To find out how Nations Equipment Finance can help meet your equipment needs contact the company today.