For lots of businesses, it is necessary to acquire new equipment to meet production needs. However, new business equipment can be expensive. Fortunately, there are options you can use to get new equipment so you can achieve your business goals. Typically, capital equipment is acquired either through leasing or financing.
Capital equipment is equipment used by a company to produce services or commodities. Your equipment might qualify as capital equipment if:
- The acquisition cost is $5,000 or more
- The equipment has a life span of at least one year
- It is a stand-alone item
- It can be appraised for value
Financing vs. Leasing
When acquiring equipment, the two primary options are financing (loan) or leasing. Both options have benefits and drawbacks, and it is necessary to examine both options fully in order to determine the best path for the business. With financing, you take on debt in order to acquire new equipment. Once the debt is paid off, the equipment will stay with the business. With leasing, you pay for the temporary use of the equipment, with the payment plan and terms depending on the agreement with the leasing company.
If you are unsure which is best, here are some things you can consider:
- How long will you need to use the equipment?
- What is your monthly budget for the equipment?
- Will the equipment become obsolete while you are still using it?
- What kind of flexibility do you need for this equipment?
- Are you planning organizational growth?
Whether you need to replace old equipment to keep up with production or want to get something new to move toward business growth, leasing or financing can be useful options. By choosing the best option for your organization, you can use new equipment to help achieve your business goals, take operations to the next level, and have the successful business you are working toward.