Someone told us recently that running a business was like being in a perpetual race. While that sounds exciting (and daunting at the same time), it made us think about how a top-tier race car driver prepares to win.
We recently attended a day at the local race track – where we heard over and over from the drivers that the few seconds, minutes or hours on the track is preceded by many multiples of that in strategy, gathering historical information, checking and rechecking the gear and the plan, and finally getting into the race-day mindset.
Preparing your business for its daily run and long-term success is no different. Whether you’re starting a daring new venture or upgrading your operations to Formula 1 levels, you need the right information to ensure you’ve got the speed to achieve your goals.
Leasing Equipment vs. Equipment Loans: It’s go time!
When it comes to equipping your business through asset financing, you’ve got two powerful choices: leasing equipment or going all-in with equipment loans. Let’s dive into each option to understand its pros and cons.
Leasing Equipment: Flexibility and Low-Cost Entry
If you’ve ever watched someone get into a jet suit (Check out www.gravity.co an innovative leader in this space for reference) then you know a little well-placed power goes a long way.
Your cash resources are really really important – they maximize your options (and minimize your panic). Equipment leasing is like that – keep more cash on hand, giving your business more options and more cushion.
Some other benefits of the lease solution are:
Unlock your cash flow and save the day: Leasing equipment means you can snag the gear you need without a jaw-dropping upfront cost, and you can often include deployment and other setup costs as well. You make regular lease payments as the equipment is generating cash flow in the business. In addition, you leave your cash in the bank, meaning you have more available to conquer other challenges and boost your business resilience.
Stay ahead of the pack with best-in-class tools: Leasing gives you a race day advantage by making the best model out there more affordable, and who doesn’t want a winning advantage?
Tax-saving adventures: Ka-ching! In many cases, lease payments can be tax-deductible as operating expenses.That means you can save some money by investing in your equipment while it is helping you drive revenue AND creating a tax deferral, helping you get straight to the Winners Circle.
When the Loan is the better choice: Control and Exit Options
- Feel the power of ownership: An equipment loan gives you more control over the asset. It’s a given that Lewis Hamilton doesn’t drive a stock Mercedes on the track, and if you’re planning to do a lot of customizing, a loan might be the better choice. You become the undisputed owner of the gear and don’t have to argue with anyone about whether you can paint those racing stripes on it or not. You’ll boost your business’s net worth and immediately have a tangible asset for future use or even a cash-generating resale.
- Savings for the long haul: Yes, loans require an initial investment, often quite a bit more upfront cash than a lease, but they can lead to long-term savings. You may have more flexible payout terms than there are in a lease, meaning that you could stop the loan (and the interest payments) on a proverbial dime to repay the loan, and the asset can be treated as your own until of course you pledge it against the next (growth) race.
- Unleash your borrowing superpowers: AH – a bit of good news – Mercedes or McLaren, you get to have your cake and eat it too. In the current world of finance, most quality lenders report to credit agencies, meaning that no matter how you choose to do the financing, you are benefiting from creating a track record. In other words, a lease or a loan will equally empower your credit record for that next run around the track.
The Loan Caution Flag.
Securing loans for equipment financing also comes with its challenges. If you are using a loan, you need to compare the loan vs the lease AFTER taxes, which includes the impact of depreciation expense, as well as the loan fees charged to your business outside of the loan. If you’re using your bank to secure the loan, they may require collateral, security agreements against your business, or personal guarantees. Planning for your cash requirements in a loan scenario has other factors:
- You will also usually be required to pay the GST/HST up front on the loan.
- Whereas in a lease the finance company pays that in advance and charges you taxes only on the monthly payment instead.
Factors to Power Up Your Equipment Financing Decision
Ready to choose your equipment financing path? Consider these factors to get on the fast track.
- Take stock of your capital, cash flow, and creditworthiness. Both leases and loans help you enhance your credit record – but having more lenders can be better than having one. If you have only ever used your bank for financing, establishing a broader credit base gives you stronger credentials and more options down the road.
- What’s your grand vision for your business? Leasing offers flexibility in adapting to changing circumstances, while loans can provide faster ownership and equity. If you want to have full control, a loan provides more ownership control. A loan is best for you if you want more business flexibility, a leasing solution that will keep more cash on hand up front and a structure that matches your business needs.
- Assess how much risk you’re willing to take and what you will give up in return for certainty. Loans often have a bigger security requirement – beyond the asset itself, they may require a security charge against your business, but also may be more easily changed or terminated ahead of their normal term. A lease passes more of the risks on to the lender but as a result, it may offer less flexibility if you need to end the lease agreement early.
Making the Best Decision for Your Business
There is not one top 10 race car driver who hasn’t invested time in learning the car, the track, the competitors, and building a race day strategy. Evaluate your unique needs, weigh the pros and cons, and consider expert advice. You can even mix and match your powers, combining leasing and loans or exploring alternative financing solutions. Embrace the power of choice!
Expert Advice for Equipment Financing!
When you’re planning equipment financing, it’s time to call in the experts. The best path is always to seek advice from the folks who do this day in and day out, and have a positive track record to bring to the table.
Our team at Prime Capital is here to lend a helping hand, providing insights tailored to your business needs. We’ll help you navigate the complexities of equipment financing and ensure you have the best possible option laid out for your equipment needs. Contact us today to speak with one of our team members and accelerate on your road to success.
Securing funding for your equipment is like finding the ultimate power-up. With our customized solutions for securing loans, Prime Capital has the tools you need to level up your business. Visit our website or contact our team of experts at 780-437-5193 to explore the exciting possibilities for equipment financing that suit your business.
