You've selected the equipment you want for your business. That part was easy. Now comes the big question: "How do you pay for it?"
You have several options, each with its own advantages. Let's evaluate them.
Good…
Cash. If your business can afford it, you might decide to purchase the equipment outright. That's fine, but it may deplete the financial resources that you could invest back into your business in more productive ways.
Better…
Bank Loan. Again, a reasonable decision, but not necessarily a practical one. Although it preserves capital, a bank loan may impact your available credit, and it will probably dip into your cash reserve. Most banks do not offer 100% financing.
Best…
Leasing. This may be the best alternative, because it offers the following advantages:
- Leasing may lower the total cost of the equipment. Tax advantages often make leasing less expensive than an outright purchase or bank financing.
- Leasing improves cash flow. Leasing allows you to pay for equipment as you use it to generate income for your business.
- Leasing preserves available credit lines. You get the equipment you need now, without tying up valuable credit lines. Your borrowing capacity is available for operating needs.
- Leasing provides fixed payments. Your monthly lease payments don't change; variable bank rate loans frequently do.
- Leasing avoids restrictive covenants. Leasing usually does not impact balance sheet ratios or other restrictions in loan covenants.
- Leasing offers 100% financing. Most bank loans require a substantial deposit or down payment.
- Leasing provides a better hedge against inflation. Although you acquire the equipment at today's dollar value, you pay for it over the term of the lease in dollars that are devalued if inflation occurs.
- Leasing conserves capital. Most businesses prefer to use their valuable capital as an investment in other aspects of their operation.
- Leasing keeps your business current. You don't have to worry about technological obsolescence when you LEASE the equipment that you're depending on in order to grow your business.
More than 80% of all businesses LEASE the equipment they need. Leasing has become the nation's preferred way of financing business equipment.
