You've decided on the refrigeration equipment you need for your business, the next step is deciding if you can afford to buy outright or if leasing refrigeration equipment is the best solution. Whether you're just starting out, own a small business or updating a larger business, this decision can be difficult. There are numerous advantages and disadvantages to both and the decision is different for everyone.
Are you looking at equipment that will need to be upgraded or equipment that will be outdated in a few years? Do you have enough cash to cover the cost upfront without affecting other finances you may have? These are some of the deciding factors you should consider.
While an established larger business might have the funds to buy the equipment outright, equipment leasing might be the better option for a business just starting out. In today's economy, freeing up cash flow in the beginning and having a fixed monthly payment for your equipment could be very beneficial to the future of the business.
Leasing refrigeration equipment gives the small business owner an opportunity to get their business up and running while freeing up hundreds, maybe thousands, of dollars that can be used for other expenditures that come with becoming a business owner. It will establish credit history for the business. And in some cases, your leased refrigeration equipment will be paying for itself as it makes your business money.
There are many lease options to consider. Depending on which lease direction you take, at the end of the lease term, you have a few options. You can decide if you want to purchase, return or continue leasing refrigeration equipment. There's the $1 Buyout Lease, sometimes called a Principal Lease or a Capital Lease. At the end of your lease term, you have full ownership of the equipment for $1.00.
Leasing also comes with tax benefits. Under Section 179, most types of equipment leases will offer you a tax deduction. Sometimes as much as 100% of the equipment cost can be deducted from your taxable income.
The obvious disadvantage to equipment leasing is, in the end, you might be paying more for your equipment than you would if you had paid in full to begin with, but this isn't always the case. Another disadvantage, depending on what equipment lease direction you take, you don't own anything at the end of your lease term.
If you have the cash, buying might be the answer. The biggest advantage to buying is that you will have ownership of your refrigeration equipment. There are also tax incentives with Section 179 that allows you to fully deduct the cost of some newly purchased assets in the first year. There are some disadvantages to buying as well, such as your equipment becoming obsolete quicker than you anticipated.
When it comes down to it, sometimes buying just isn't an option for some. Whether you decide to opt for leasing refrigeration equipment or buying your refrigeration equipment, keep in mind the overall wellness of your business. You don't want to hand over thousands of dollars for refrigeration equipment and then realize you're strapped for cash and can't afford your other business expenses. Consider the pros and cons of each, consult your tax advisor and then decide which is most cost-effective for you and your business.
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