Buying or leasing is a strategic decision that every small business owner will have to make at some point. For both manufacturing and retail business, purchasing equipment for the production of goods is critical for business operations and future growth. However, owing to the fact that technology moves at a fast pace and many of the machinery and equipment might get obsolete quickly, a small business owner should make a wise decision on whether buying or leasing equipment makes more sense. When an individual looks for purchase options, they will require a small business loan to pay an upfront amount for the use of the asset, which can be later disposed of off to generate sales proceeds. On the other hand, leasing equipment will take forward-looking strategies and how long can does business needs equipment for. Making an adverse decision may have severe consequences on borrowing and funding options for future
Small business Loan for Equipment
Small business loans are usually used for working capital needs, purchasing inventory, paying employees, or general office revocation and location tasks. But if a small business wishes to buy equipment it thinks will be of benefit, it can seek a small business loan to pay down payments for the equipment. If a secured business line of credit is sought, a business owner can provide the same equipment as collateral and receive a lower interest rate. Additionally, since it’s a purchase of equipment, the owner has the liberty to use it as they may fit and has control over its earnings. Lastly, the asset can be easily sold to repay the loan and any subsequent dues. Equipment loans also provide tax credits and rebates on depreciation and disposals.
Leasing an Equipment
Leasing, on the other hand, maybe a complex matter for new business owners. Leaning is preferred when a business owner requires an asset or equipment for a short period of time and does not wish to hold it for a longer period of time. There are usually no tax benefits attached to a lease, while it is treated as a business expense on financial statements. A business owner may have to adhere to conditions on how an asset is used, while the asset cannot be used as collateral for future loans. A lease has no interest rates attached to them, but the monthly payment may rise after a certain time period, although the amount remains fixed. At the end of the lease term, security deposits are returned, and the asset is returned, saving trouble for asset disposal and subsequent accounting records.
A lease or loan option is solely dependent on the use of an asset. If a small business owner thinks that an asset will be of benefit in the long run, seeking small business funding or a secured business line of credit makes sense. However, if the business operates in a volatile and constantly changing industry, lease options can save vital cash.