If you need to obtain equipment for your practice, you have a number of ways you can go about paying for it. What is equipment financing and why would you consider it? We have the details.
Posted in Equipment Financing & Loans on Thursday, September 16, 2021
Owning your own practice involves much more than simply being a skilled practitioner. To be successful you have to be part human resources manager, part marketing genius, part operations specialist, and especially a financial guru. One of the most important areas of knowledge is finance; if you know how different financial products work, you can determine what makes the most sense for your immediate and long-term goals and needs. Let’s look at equipment financing.
There are two ways to finance equipment. It’s useful to understand the difference since they sound similar.
What’s the difference between a lease and a loan?
Equipment leasing
Just like when you lease a car, you’re entitled to use the equipment for a specified period, and at the end, you have the option of returning the equipment to the vendor, or purchasing the equipment for a flat fee. Depending on the company you’re working with, this can also be called small business equipment leasing, or business equipment leasing.
Equipment loans
You own the equipment from the time you receive it and make monthly payments until the purchase price plus interest is paid. These are also known as small business equipment loans, or business equipment loans, depending on the funding source.
10 things to know about equipment financing
If you’re considering acquiring new equipment, you’ll probably work with an equipment finance company. These companies may offer the option to lease finance, or sales finance, and some offer both. Here are ten things to be aware of, regardless of whether you choose to loan or lease:
- It is usually very simple to apply.
- The equipment is collateral for the loan.
- Interest can be deductible.
- Either may boost your business credit score.
- The amount funded by loan or lease is paid directly to the vendor.
- With some lenders (but not all) there is no prepayment penalty.
- Some lenders allow principal balance payoff.
- The cost can be depreciated over the useful life of the equipment, or written off in full in the year of the purchase with Section 179 advanced depreciation. (Check out our podcast episode dedicated to Section 179!)
- There may potentially be a balloon payment.
- Interest rates may change payments across the life of the loan.
As a business owner, every day is a new opportunity, and every day comes with a number of decisions to be made. Having a solid understanding of the many aspects of running a business will help lead you to greater success. Understanding your finances so you know what type of financing makes the most sense for you and your practice is one of the most valuable tools you can have as a practice owner.*
*Always consult with your financial or tax advisor before making financial commitments.