If you're a small business owner, you're probably always on the lookout for ways to save money and improve your bottom line. When it comes to financing or leasing business equipment, there are a few things you should know in order to make the best decision for your business. In this blog post, we'll take a look at the pros and cons of both equipment financing and leasing so that you can decide which option is right for you.

Equipment Financing:

Pros

When you finance your equipment, you essentially take out a loan to purchase the item outright. This means that you own the equipment and can use it for as long as you like. One of the major benefits of financing is that it allows you to deduct the interest payments from your taxes. This can help reduce your overall tax liability and improve your bottom line. Additionally, if you ever decide to sell the equipment, you can keep 100% of the proceeds.

Another Advantage is Business Depreciation

Depreciation is an important concept for business owners to understand. Depreciation is the gradual decrease in value of an asset over time. There are two main methods of depreciation:

• Single Line and Double Declining. Single Line depreciation is when the asset is depreciated at a fixed rate over its lifespan.
• Double Declining depreciation is when the asset is depreciated at a higher rate in the beginning of its lifespan, and then the rate decreases over time

Businesses use depreciation to lower their taxes, because it allows them to expense the cost of the asset over time instead of all at once. Depreciation is a complex topic, but understanding it can save your business money on taxes.

Equipment Financing: The Cons

One of the major drawbacks of financing is that it ties up capital that could be used elsewhere in your business. It's important to consider whether or not you have enough cash flow to make the monthly payments on your loan. Additionally, if your business isn't doing well and you can't make the payments, you could lose the equipment entirely.

Equipment Leasing:

The Pros

Leasing gives you the opportunity to use expensive equipment without having to purchase it outright. This frees up capital that can be used elsewhere in your business. Additionally, because leasing is considered a type of rental agreement, it isn't subject to depreciation like purchased equipment is. This means that your lease payments are fully tax-deductible.

Equipment Leasing: The Cons

One of the drawbacks of leasing is that you don't own the equipment at the end of your lease term. You also may have to pay a hefty fee if you want to purchase the equipment outright or renew your lease agreement. Additionally, because leased equipment is considered a rental, it isn't eligible for any federal tax deductions or incentives like purchased equipment is.

So, which is better—equipment financing or leasing? The answer depends on what's most important to your business. If saving money on taxes is your top priority, then leasing might be the way to go. However, if owning the equipment outright is more important to you, then financing might be a better option. Ultimately, it's up to you to weigh the pros and cons of each option and decide what's best for your business.