Equipment Financing is a Better Cash Flow Solution than Direct Purchasing
Every day business owners have to make important decisions regarding cash flow options for their companies. The choices they make can have a big impact on cost of operations over the days, weeks and months ahead, and determine the financial health of their business over the years to come.
Many of the financial decisions made on a daily basis involve small, every day costs such as supply acquisition and inventory. Other decisions involve major expenses such as mortgage or rent costs, insurance fees and how to meet payroll. These costs are often met with either large loans from financial institutions or come out of monthly operating expenses from cash flow created by the company.
Large Equipment Expenses
However, one type of expense tends to fall into a gray area for many business owners, equipment purchases. Some of the items needed to run a business are low cost and can be purchased outright. For items that are easily covered by the operation’s monthly cash flow, or affordable on an easy to pay vendor credit account without incurring interest, it is a wise choice to pay for them upfront.
The Tax Benefit of Equipment Loans
It is true, that a business equipment loan will increase the cost of the item by adding interest to the total amount owed, but that is easily offset by the tax savings that come from paying for the item over time.
Business equipment is not deductible in the same manner as such expendable items as paper, pens or other regular expenses. Instead of getting the full value for the item in the year it is purchased, business equipment is depreciated over the expected life-span of the item. Since full value isn’t available as a deduction, paying full value at one time does not make sense. Instead, spreading the amount paid over several years allows for a more equitable tax situation as well as leaving more money available for other expenses through the year.
Finance Availability for Equipment
Like cars or homes, business equipment has intrinsic value. Since the equipment itself is an asset owned by the business, it is its own collateral for a loan. It is easier to get a business equipment loan than lines of credit or other types of financial aid for a business that is based on the ability of the company to thrive.
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