Compare your options
Should you finance equipment or pay cash?
Paying cash avoids the cost of borrowing. It also empties the account that covers payroll in a slow month. The right answer depends on what else that cash has to do.
Short answer: finance it if the equipment earns while you pay for it and the cash has a better job to do. Pay cash if the purchase is small relative to your reserves and the financing cost buys you nothing.
The case for financing
- The equipment earns from day one and pays for itself out of the revenue it generates rather than out of savings.
- Your cash stays available for payroll, inventory and the problems you cannot predict.
- It is secured by the equipment, which is why it prices better than unsecured funding.
- It builds business credit, which makes the next facility easier and cheaper.
The case for cash
- The purchase is small next to your reserves.
- You have no near-term use for the money that earns more than the financing costs.
- You would rather own it outright with no payment attached.
The question that settles it
Take the monthly payment and ask whether the equipment generates more than that in additional revenue or saved cost. A machine that adds $4,000 a month of capacity against a $1,200 payment is an easy yes. A truck that sits idle half the month is not, regardless of how it is paid for.
Then ask the second question: if you spend this cash, what happens in your slowest month? A business with no buffer is one bad month from taking expensive emergency funding, and that is far costlier than the financing you avoided.
More on equipment financing.
Questions owners ask
Is financed equipment tax deductible?
Equipment purchases often qualify for deductions or depreciation, and financing does not usually change eligibility. The specifics depend on the structure and the year, so ask your accountant.
Do I own the equipment?
With equipment financing you generally own it and the lender holds a lien until it is repaid. A lease is different, so read which one you are being offered.
Can I finance used equipment?
Often yes, though age and condition affect the terms.
Related
- Working capital vs line of credit
- MCA vs business loan
- Factoring vs line of credit
- Who actually lends?
- Merchant Fund Express
All business funding options › · Calculators ›
General information, not financial or legal advice. Terms vary by lender and business.
If you decide to finance, Merchant Fund Express finances vehicles, machinery and kitchen and medical equipment, secured against the equipment itself.
Funding subject to approval.