Every business has equipment needs. With equipment financing and leasing available, what are some benefits of getting an equipment loan?
Just about every business across the economic spectrum uses equipment as “tools of the trade” to provide their product or service. The equipment they use ranges from vehicles, computers, office equipment, and much more. The cost for such equipment can increase quickly. As a result, it is virtually impossible to pay for everything using your capital. The most popular ways to get the equipment you need being a lease or a loan. What are some benefits of getting an equipment loan?
What is an equipment loan?
Also called equipment financing, a lender will front you the money to purchase equipment. They will provide you with a portion of the funding needed, requiring that you have some “skin in the game” or fund the entire purchase price of your equipment.
Over the life of the loan, you will pay back what you borrowed plus interest. Once you have repaid your loan according to your agreed terms, you own your equipment outright.
What is an equipment lease?
With an equipment lease, you do not take ownership of the equipment. Rather, the lender buys the equipment and rents it to you for a monthly payment.
At the end of the lease, you can purchase the equipment, renew your lease, or return the equipment.
What is the difference between an equipment loan and an equipment lease?
The main difference between an equipment loan and an equipment lease has to do with ownership. With an equipment loan, you own the equipment once your loan has been paid. In contrast, an equipment lease is like a rental agreement in which you only pay for using the equipment owned by another party.
What are some of the benefits of financing your next equipment purchase?
Ownership: The biggest difference between equipment financing and equipment leasing is also its biggest advantage. This is especially true when the asset has a long useful life and is not likely to become obsolete soon, such as office furniture, vehicles, or farm machinery.
What is Section 179 of the IRS Code, and how does it pertain to equipment financing?
Tax incentives: Section 179 of the Internal Revenue Code allows you to fully deduct the cost of some newly purchased assets in the first year. To qualify for a Section 179 deduction, your asset must be:
- Tangible – Physical property such as equipment, furniture, and most computer software qualify. However, intangible assets such as patents and copyrights do not qualify, as do buildings and land. However, some equipment attached to the building does, such as alarms, fire suppression systems, and air conditioning units.
- Purchased – Leased property does not qualify.
- Used more than 50% of the time in your business – Your equipment has to be primarily for business use.
- Not acquired from a related party – Equipment cannot be acquired from siblings, spouses, parents, grandparents, descendants and business, trusts, and charitable organizations with whom you have a relationship.
When looking at equipment financing and leasing, what are some additional factors to be aware of?
When compared to equipment financing, leasing is almost always more expensive than purchasing your equipment.
With leasing, you are obligated to pay for the entire term of the lease agreement, even if you stop using the equipment. Some leases come with the option to cancel prematurely if your business changes direction or the equipment is no longer needed. However, early termination fees always apply should you exercise this option.
Looking for an equipment loan, we can help.
If you determine that equipment financing is for you or you have questions, we can help. As a small business, we know and understand everything that comes with growing a business. As a result, we specialize in financing solutions for small and medium-sized businesses, including equipment loans.
Contact us today or call (800) 795-3919 to speak to a ZIP Capital Group equipment loan specialist.