Business owners often question whether they should finance equipment or purchase it outright. The answer to this question depends on several factors, as no two businesses are alike. However, every owner needs to know the benefits of equipment financing when making this important decision. Take the following into account as you weigh the pros and cons of each option.
Reduced Cash Outlay
Business owners want to save cash, as they need to have funds on hand if an unexpected situation arises. When a company finances equipment, doing so preserves working capital. If the business purchases the equipment outright, the funds are no longer accessible for other purposes. A company may discover this is an issue when a situation arises where they need a large sum of money and the funds remain tied up in the equipment. With equipment financing, the business owner has a predictable monthly payment for the designated period.
The cash flow of the business improves when equipment financing is selected. A lessor benefits from the arrangement as they receive tax benefits associated with offering a lease. The lessee likewise benefits by making smaller payments and reserving its cash on hand. While the lessee may benefit from tax depreciation, this isn’t always the case. For instance, the lessee may not use the tax deprecation to offset taxable income in certain situations. This happens when the business uses the alternative minimum tax or has current operating losses or loss carry-forwards.
Better Financial Picture
According to realtimecampaign.com, equipment financing results in a better balance sheet for a business. Creditors, stakeholders, and more look at equipment financing payments as an expense rather than a liability. The business shows less debt on financial statements when it selects this option.
Rapid Approval and Funding
Cathedra Bitcoin Secures US$17m in Equipment Financing from NYDIG was a headline that appears in many newspapers. Securing $17 million may seem like it would take a lot of time and effort by the borrower, but that isn’t the case with equipment financing. Most businesses learn the same day whether the lender approved the application and get the equipment they need quickly.
Financing
When a person leases equipment through L3 Funding rather than purchasing it, they don’t need an initial down payment. The lender rolls any soft costs associated with financing the equipment into the lease agreement. This allows the borrower to pay the costs over time. Costs the lender may roll into the agreement include sales or use taxes, delivery charges, interest charges on advance payments, and training costs.
Life Cycle Management
Businesses no longer need to worry about obsolete equipment when they choose to finance new items instead of purchasing the items outright. When the lease term ends, the company can easily upgrade. This allows the business to stay competitive when it comes to the latest technology, machinery, and equipment.
Individuals understand the uncertainty of today’s economic climate. Nobody predicted the global pandemic of 2020 and the accompanying lockdowns. Equipment financing helps ensure a business is situated to withstand future circumstances beyond its control by freeing up cash, providing the company with a better financial picture, and more. If one is in need of new equipment, learn more about leasing today, as it might be ideal for one’s needs.
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