I Have the Money to Pay for Equipment in Cash. Why should I Finance Equipment Instead?
If you need to buy equipment for your small business — whether you have several employees or you're a one-person operation — you may be thinking about how to actually pay for it.
For instance, you could save cash on hand for months or more to come up with the full dollar amount of the price tag, or you could rely on financing to help you cover those costs. While it might seem as though there's no "right answer" to this issue, there are actually plenty of reasons why financing should be preferable, including the following:
The most obvious reason to rely on financing is also the simplest: Many small and medium businesses operate on thin margins, and if you don't always have cash on hand, running the company can be difficult.
Making a large lump-sum payment out of your own pocket up front can be difficult for many companies to manage. Financing, as Investopedia notes, gives you a longer term to pay back the balance — all while your new equipment makes you more efficient and effective — and then the lender relationship can end.
Predictability and certainty
When you put together a financing agreement, you more or less immediately know what your obligations to the lender are going to be for years to come. That makes it fairly easy to plan for the expense.
When you pay with cash, it's a one-time expense, but it might leave you open to some financial vulnerability because of the sheer size. It could take you years to set aside the kind of funds you need to buy the equipment you need, but you could just get it financed and set aside a similar amount each month to cover the cost.
Finance costs can be tax-deductible
Some business experts would say that the big drawback of financing is that you have to pay interest on the lump sum you receive up front. However, you should always keep in mind that the ATO allows you to claim a lot of the expenses for operating your business, including some of the costs you incur with financing.
If you feel your business needs a little more financial flexibility on an ongoing basis, turn to the experts at Classic Funding Group. We can help walk you through all your options and find a solution that works well for you and your organisation.