Having the latest equipment is crucial for businesses to stay competitive. While upgrades come at a price, don’t let that deter you.
If you’re looking for cost-effective ways to buy equipment for your business, you have choices. To help make sense of them, we’ll go over a few of the trends that determine which are best suited to your needs and the current economy, as well as explore two of the most popular options for getting the equipment you need.
Equipment purchasing economic trends
Industries ranging from transportation and machinery to software and technology continue to invest in capital equipment. U.S. businesses, nonprofits, and government agencies are expected to spend more than $2 trillion on new supplies and upgrades in 2023.Disclosure 1 That would result in 11.1% growth in equipment and software investments since 2021.
Future dollars will be distributed across many equipment types—with construction expected to see the heaviest investment, followed by machine tools, medical, trucks and trailers, and technology.Disclosure 2
Leasing vs. financing business equipment
There’s a certain security to purchasing all in one go, but equipment can quickly become outdated and obsolete—and a liability. Two of the most well-known ways to avoid those problems—as well as the heavy upfront costs of outright purchase—are equipment financing and leasing.
There’s a certain security to purchasing all in one go, but equipment can quickly become outdated and obsolete—and a liability.
Both are tried-and-true options for acquiring equipment. Determining which will work best depends on many factors, including the state of your business and your financial and business goals.
The benefits of leasing business equipment
To get the equipment or software upgrades they need without taking a substantial budgetary hit, many industry-diverse companies opt to lease equipment. For those that choose to lease, four considerations are normally the deciding factors in their decision:
The duration and cost of the project you’ll need the equipment to accomplish is what makes each of these important. If you’re facing budget and time constraints, there are several reasons these benefits make leasing a great option.
- The upfront costs of leasing are lower than financing. Rarely requiring a down payment, leases enable you to gain assets with minimal initial expenditure.
- On a tight budget, leasing is more affordable. Leases offer more flexible terms, tend to have lower monthly rates, and provide certain crucial tax advantages that are unavailable when purchasing or financing. They have elastic payment plans to fit your finances and can usually be counted as deductible business expenses on tax returns.
- Considerations like the useful life of equipment are addressed by leasing maintenance packages. This not only ensures equipment is kept in working order by professional technicians, but also reduces the amount of time spent on upkeep and repair.
- Equipment obsolescence and upgrades are easier to manage on a lease plan. Should you require specialty equipment for a short-term project, leases save you from having to finance equipment you won’t need again and enable upgrades to core tech and machinery through a new agreement after the initial lease has expired.
The benefits of financing business equipment
If you’re working toward long-term improvements to your business but don’t want to pay the entire cost of upgrades upfront, exploring different types of equipment financing is worthwhile. Though terms vary by industry and type, there are four constants in the world of equipment financing:
These may seem like straightforward features, but a breakdown of each shows just how helpful they are in the event your circumstances align with financing.
- Qualifying is easy, and funding is quickly available. The equipment you’re financing frequently operates as collateral. Because of this, the risk to lenders is minimized, creating a situation where qualifying is much easier, and funds are made available within a matter of days, as opposed to weeks or months with lines of credit or bank loans.
- Financing comes with interest payments. While you won’t have to put up collateral for the loan, financing will require interest payments. This can be more expensive than leasing, but many plans come with fixed rates, allowing you to forecast budgeting more accurately over extended periods as you work toward ownership.
- You’ll own the equipment. Unlike leasing, after paying off the final installment you’ll own what you’ve invested in. If your plan was relatively short in duration, and wear and tear on the equipment was minimal, your company will not only have purchased a useful tool but also will have gained a valuable asset.
- Tax deductions can be substantial. Though tax deductions vary by equipment type, the upper limit is currently $1.16 million.Disclosure 5 Even with more expensive equipment, this is a significant benefit—and for small businesses it represents the potential to write off entire financing plans.
Meeting your needs with equipment financing and leasing
Just as every company has its own unique circumstances, each method of equipment acquisition has its benefits. The key to identifying the one that works best for you is to find where those two points intersect.
Because when it comes to equipment lease finance, there is no best-overall option—there’s only the option that fits your situation best.