By Stephen Sheinbaum
Every business needs equipment. For some, it’s as simple as a smartphone and computer, for others it’s a 12-burner range and a box truck, or a full suite of dental tools and an X-ray machine. Some equipment can be used for many years, while other items might be obsolete in 24 months. Some must be acquired new, while others can be purchased used. Some can be purchased outright, while others can be leased. But no matter what you need or the capital you have on hand for it, there are ways to get equipment–and finance it.
Step One: New or Used?
For some equipment, the choice is obvious; for others it’s far less so. Base your decision on condition, support and expected lifespan. New equipment gives you the opportunity to get the latest technology and a full warranty, but the price could be too rich for your budget: If you acquire the equipment you want new, will the purchase leave your business with enough capital for other needs?
Used equipment is an option for many kinds of heavy duty equipment, and equipment that is not subject to frequent changes in technology. If you decide to take the used equipment route, ask if it still comes with a warranty or if an extended warranty is available. More and more equipment is being sold this way.
Step Two: Buy or Lease?
When you buy your equipment, you gain an asset that you can sell in the future–and bank the benefits of that sale–or use as collateral for the next stage in your business’ growth. There’s no complicated lease contract to evaluate, and, there are tax benefits to owning your equipment: Under section 179 of the federal tax code, purchased equipment can be used as a deduction, although the maximum deduction was reduced to $25,000 in 2015.
If the technology in your industry changes frequently, leasing can help you get current equipment that you can hold onto until the next upgrade appears. A short-term lease can let you bring in items for a test drive, instead of buying equipment only to discover it does not meet your needs. Leasing can also be a boon if you lack the skills to maintain your equipment because leasing contracts often come with a maintenance plan. You will be able to pay for your leased equipment in small monthly amounts, which can free up capital for other purposes. While it can cost you more to lease a piece of equipment than to buy it, some lessors offer a purchase option that applies a portion of your lease payment towards the purchase price.
Step Three: Funding It All
Once you’ve decided whether to buy or lease your equipment, you then need to determine how to pay for it.
There are more equipment funding options for small businesses today than ever before. Many equipment manufacturers have their own finance arms, just the way auto dealers do. Depending on your industry and the equipment you are seeking, you may be able to qualify for low-cost funding from a small business loan guaranteed by the U.S. Small Business Administration (SBA). But getting an SBA 7(a) loan can be a lengthy process because it requires two separate applications, one for the bank and the other for the SBA.
The last decade has also seen the emergence of alternative funders, many of whom operate only online. Their streamlined application process–available to business owners with a variety of credit profiles–means that funding for a piece of equipment could be in your bank in a matter of days, not weeks or months.
Stephen Sheinbaum is the founder of Bizfi, an aggregation marketplace that offers many kinds of alternative funding. Since 2005, Bizfi has originated more than $1.3 billion in funding to more than 25,000 small businesses. @Bizfinyc
