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Equipment Financing - Understanding Your Options

As you look at equipping your practice, from computers to adjusting tables, you will be faced with decisions on how to finance the equipment. Loan or lease? Which option makes the most sense and would be best for your practice? What are the true costs associated with financing equipment?

There are many factors beyond the monthly payment to consider when financing equipment, including tax benefits, buy-out provisions, hidden fees or other expenses and prepayment costs, just to name a few.

Why should you finance equipment?

  1. Cash Management – by financing your equipment, you can preserve cash on hand for other day-to-day expenses associated with your practice.
  2. Preserve Credit Lines – if you've established a line of credit with your bank, you don't need to draw on it for your equipment expense but can instead keep it available for other operating expenses.
  3. Conserve Working Capital – you'll be able to use the equipment while spreading payments out over the life of the asset. 
  4. Other Investments – by financing your equipment, you can use your cash for other business investments that might produce a higher rate of return.
  5. Tax Advantages – Section 179 of the Tax Code may allow you to deduct the full value of the equipment, even if it's 100 percent financed. The tax savings can be significant.
  6. Quick and Easy – Securing funding through a finance company can be quick and easy. A bank may not understand your equipment needs and may require additional collateral or a lengthy underwriting process.

Lease vs. Loan - What's the Difference

Leases and loans may use similar terminology but that terminology may have different meanings. Key terms you'll want to understand include:

  • Up-front payments
  • Security deposits
  • Prepayment costs
  • Interest rate
  • Buy-out provisions
  • End-of-term buyout

You'll also need to determine if there are any hidden fees such as a penalty for early pay-off or documentation fees.

How Do You Decide?

When it's time to finance equipment, you may want to talk to your accountant or tax advisor. Discuss the pros and cons of financing compared with other payment options before making a final decision.

You may also want to contact one of the finance representatives at NCMIC. We provide competitive financing solutions for DCs that include quick turnaround. Find out more here.

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