When you're ready to acquire new equipment to support the goals of your practice, whether that's a new computer system or adjusting tables, you'll need to decide how best to finance the equipment. Pay cash? Or should you take out a loan? Perhaps lease the equipment? Which option makes the most sense and would be best for your practice? What are the true costs associated with financing equipment?
by Tony Dickinson, President - NCMIC Finance Corporation in Get Financing on Thursday, December 13, 2018
When you’re ready to acquire new equipment to support the goals of your practice, whether that’s a new computer system or adjusting tables, you’ll need to decide how best to finance the equipment. Pay cash? Or should you take out a loan? Perhaps lease the equipment? 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.
Why finance equipment?
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 expenses but can instead keep it available for other operating expenses.
Conserve Working Capital – you'll be able to use the equipment while spreading payments across the life of the asset.
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.
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.
Cash Management – keep your cash on hand for other day-to-day expenses associated with your practice.
Other Investments – your cash can be used for other business investments that might produce a higher rate of return.
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?
As with any financial decision, you may want to talk to your accountant or tax advisor to discuss the pros and cons of financing for your specific situation, compared with other payment options.
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.