From the Author

We often get this question with our new (and sometimes returning) clients. In the following article, we discuss paying cash vs. financing and talk about the possible benefits that you can acquire with financing.

Introduction

The discourse around whether to pay cash or opt for a suitable financing option is older than you think. If you run a business, paying cash and financing are both viable options, and there are benefits to each one. Using a finance option is an effective strategy for business owners to maintain positive cash flow. Not to mention business owners can also spread costs on large and complex projects over years, rather than paying upfront.

Tax Benefits of Leasing

Yes, there are many tax perks when leasing for business owners. Looking at the lease payments through the lens of an expense can reduce business tax liability and qualify as an operating lease. Your certified accountant should review this to assure that you are following all rules and regulations. The above is NOT tax advice.

Capital Conservation

Every business owner wants to make fewer upfront costs and keep their payments to a minimum. There are numerous financing options that allow businesses to save money and focus on more urgent tasks.

Cover ALL the Soft Costs

In an ideal situation, leasing comes with 100% project coverage, meaning you get all the money you need to make your purchase. That being said, if you want to get a traditional equipment loan, you may need to make an initial down payment. The good news is that financing can cover all soft costs, including software and services, so that your money is going toward an all-inclusive financing agreement.

Freedom to Structure the Lease

As a business owner, you can structure the lease terms to suit your business needs. If you run a small business, financing can help you keep your balance sheet where you want it. Some of the options you have when it comes to the structure are Term Length (12, 24, 36, 60 months), Type of Agreement (EFA, FMV, etc.), and payment start date (through options such as deferrals).

Equipment Life Cycle Management

Most business owners are aware of the cost it takes to maintain essential business equipment. Financing allows businesses to conduct regular upgrades and reduce equipment obsolescence. In the U.S., you can choose from a variety of leasing options, and most leasing options will give you the flexibility to upgrade your business equipment anytime you want. Having the flexibility to upgrade your equipment when you need to is key to life cycle management.

Better Business Credit

Apart from potential income and saved cash, leasing improves your overall business credit. Business credit is a crucial part of running your business. In short, it becomes much more convenient and straightforward to apply (and get approved) for various business loans and financing options. Having financing on your business credit report is a great boost to help you get more approvals, better turnaround times, and even better rates.

Conclusion

In conclusion, we talked a lot about financing and how it can help your business. This is not to say that paying cash isn’t a great option (because oftentimes it can be a great option.) However, when you purchase equipment or other business items with cash, you lose the cash that you could’ve saved by using a financing option. Possible tax benefits, capital conservation, and building business credit are some great benefits of financing. Be sure to weigh all of the pros and cons of financing and paying cash when looking at your next business purchase.

REFERENCES:
⦁ https://www.moneyunder30.com/finance-a-purchase-or-pay-cash
⦁ https://www.moneyunder30.com/when-to-finance-even-if-you-could-pay-cash
⦁ https://www.investopedia.com/terms/c/cashflow.asp
⦁ https://www.autopedigree.co.za/blogs/cash-vs-finance

 

 

Blue Street Capital

Here at Blue Street Capital, we aim to provide you with the most up-to-date information on the financing industry so that you can become an educated buyer. Should you have any questions about this article, or any other information related to the equipment financing industry, please feel free to reach out to us using the contact form below. You may also give us a call at 714-316-1180.