Work with a lender who understands your business and your equipment to structure flexible financing solutions that fit your business.

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Even during the current economic volatility, many businesses need capital equipment, but must pay more to finance it. There are, however, many options for leasing, user fees, or getting a loan.

Here are some things these companies can consider:

Lease

Businesses of all sizes often choose to leverage equipment leasing, in part because the value comes from using the equipment, not owning it. Renting provides increased flexibility, especially when future upgrades are planned. Rental is also a predictable expense, as equipment expenses simply become a monthly item. (Companies can ask tax advisers if this could lead to tax advantages, such as rental payments being considered business expenses). This could help control cash flow, allowing businesses to conserve capital and reserve lines of credit for other needs.

Interest rates are still near historic lows, but they have risen and are expected to rise further. This means companies could choose to lock in long-term rates before they rise further. However, given supply chain challenges, installing equipment may take longer than expected. In this case, tenants should explore options to lock in rates now and delay monthly payments until the equipment is fully installed.

The most popular options include a fair market value lease (true operating lease) or a $1 buyout (capital lease/finance lease). Since fair market value leases tend to have lower monthly payments, they may be considered an operating expense. This option helps to mitigate the risk of technological obsolescence, but companies will only know at the end of the lease how much it would cost to purchase the equipment if they choose to keep it.

$1 buy-out leases (capital leasing/leasing) help businesses purchase equipment that will be useful even after the lease expires, potentially allowing tenants to take advantage of any tax deductions that may come with additional depreciation. These payments would likely be higher though, as the total equipment cost is spread over the chosen term.

Fee per use

Consumption-based agreements charge a fee for each use. Fewer lenders offer this, but it could help businesses trying to match payments to income. While companies can bundle the complete solution for consumption models, expenses (such as maintenance, equipment, upgrades, and implementation) can be unpredictable. Using equipment more than expected could exceed standard monthly payments.

Loans

With rising inflation, it might be better to lock in long-term fixed rates for loans. This could help small and medium-sized businesses facing higher expectations from end customers. With loans, businesses own the equipment and build equity as payments are made. Businesses could also benefit from Section 179, which would allow them to deduct the cost of equipment as an expense for the tax year it is put into use. The trade-off: Loans have higher payments than leases.

In this volatile market, cash is king. Some businesses with sufficient capital may use it to make a down payment on a loan, but others may set aside that capital and hold onto it so that rising interest rates help it grow. To preserve liquidity, businesses can seek out lenders that offer 100% equipment financing — including installation and delivery — with no down payment.

Tailor-made solutions

Companies have long relied on equipment financing to grow through volatile economic cycles. When evaluating the best options, it’s important to work with a lender who understands your business and your equipment to structure flexible financing solutions that are right for your business.