Business operations rely heavily on equipment, software and hardware, and manpower to function effectively and deliver results. In terms of sustainability and positive cash flow, certain businesses benefit more when equipment are leased than purchased new. Leasing from a financial institution or taking a loan from the bank to acquire equipment are two different methods of equipment financing.
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Leasing offers better advantages
Equipment like computers are packaged with software which run the risk of being obsolete within a few years, therefore requiring consistent upgrade. Leasing agreements can include technology upgrades and add-ons as well as replacement to avoid obsolescence and keep the business competitive. Leasing also either doesn’t require or keeps low down payment, which protects the business’ cash flow intended for growth. Finally, monthly lease payments could be 100 percent tax deductible when viewed as operating expenses. That represents big tax breaks.
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Bank loans pose greater risks
Conventional bank loans usually require 10 to 50 percent down payment, which is a punitive sum for small and medium businesses. The ownership of the equipment is also fixed after the end of the loan regardless if the equipment has passed its lifespan. Moreover, loans immediately clip the line of credit. As for hope of tax write offs, the only advantage is depreciation and the loan’s interest.
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Leases and loans can come with similar terms but from the cash flow perspective, lease payments are still more practical compared to loan payments.
Need leasing capital for your business equipment? CG Commercial Funding offers flexible financing options so you could channel your investment toward your core business. Know more about equipment leasing through this website.
Insight in Equipment Leasing 