New equipment can make your business more competitive. It is wise to consider using business loans for financing equipment purchases!
Here’s a few pros and cons to review when deciding to use business loans to finance equipment
Pro 1 – It’s fast and easy
Getting a loan for equipment is easier than ever. Financing Your Way helps businesses that depend on equipment keep up-to-date machines. The criteria for applying is more lax than in past, so borrowers of all business levels are encouraged to apply.
Con 1 – More complex accounting
When you are approved for a loan to finance machines and equipment, you will have to implement more complex accounting methods to record the liability and interest associated with the loans as well as the cost, salvage value and useful life of the equipment. It is recommended that you consult with your CPA during the application process so the transaction can be correctly recorded on the books.
Pro 2 – Keep machines and equipment up-to-date
As you company builds history with lenders, you will qualify for additional offers, which will allow you to keep your machines up-to-date. This also means you can decide to stay ahead of the trend with top-of-the-line machinery and equipment, instead of just replacing older or broken items.
Con 2 – Downtime during install
When installing new machines and equipment, your business may experience down time. Be sure you plan installation in segments so that cash flows are not affected by the time it takes to install and become acclimated to new technologies.
Pro 3 – Builds business credit
As previously stated, taking on loans to purchase equipment improves both your business and personal credit. When you make timely payments, you prove your credit worthiness and encourage lenders to have confidence in your business.
Con 3 – Depreciation recapture
Depreciation recapture occurs when an asset is sold at a gain before the useful life is exhausted and therefore leads to prior period deprecation being recaptured as taxable income. If you plan on upgrading your machinery and equipment often consult with your CPA to get advice on how soon you can replace your equipment without having to recapture depreciation.