Why finance business equipment if you can afford to pay in cash?
Ask Pink Floyd for their thoughts on finance, and they’ll nag, “Money? It’s a gas. Grab the cash with both hands, and make a stash!”. With a squint and a gravily whisper Clint Eastwood will also tell you nothing makes his day more than a Fistful of Dollars. And as for Cuba Gooding Jnr, well, just ask Jerry McGuire.
The fact is, everyone knows there’s nothing like cash in hand. And the more the better – especially when it comes to your business coffers.
Yet, while it’s tempting to spend those hard earned, and saved, cash reserves on major purchases such as business equipment, it may not always be the right option.
Let’s take a look at why you can often gain more from financing your equipment – and store your cash for events far greater than just the next rainy day.
Pay over years, not all at once
You can structure finance for all kinds of equipment over a period of years, paying small regular instalments – with or without balloon/residual payments – instead of one huge lump sum up front.
Peace of mind
It’s a fact of business life that unexpected debts pop up – sometimes far bigger and faster than we ever imagined. If you didn’t have available cash, could you pay your staff and bills if you lost your biggest client overnight? It’s not easy getting financing to bail you out of this situation.
Take advantage of current interest rates
Depending on the equipment you want to finance, you can lock in a fixed interest rate for up to 5 years. For example, say you run a printing company and are looking at a $100,000 printing press. On current rates, you’d pay around $2100 per month – and it’s tax deductable.
Not all finance products are the same
There are a number of products available for financing business equipment and vehicles. A good finance broker will listen to your needs and explain the pros and cons of each – including tax and GST benefits. Your accountant can advise you of the best option. These are:
- Chattel Mortgage– you own the asset from the day one
- Commercial Hire Purchase– you hire it from them with an option to own later
- Finance Lease– finance company owns it, you enjoy full benefit of asset for regular repayments, with finance company disposing of asset at end of term.
- Operating Lease– financer rents asset to you for an agreed payment over a fixed term.
Upgrade to keep ahead of the pack
Depending on your finance product, you can keep upgrading your equipment as new technology is introduced. If you pay in cash, you’re stuck with the same model that constantly depreciates in value. So to stay ahead of the competition using cash, you lose time and money selling and then buying something new.
Get in the bankers good books
Establishing a sound credit rating with bankers and financiers today, makes it much easier to borrow down the track as you want grow your business even faster.
And when it comes down to it, that’s the real benefit of financing over cash payments for business equipment.
Cash might initially keep you debt free, but financing is often the best way to go if you’re ultimate goal is to grow your business faster.