Buying new equipment is a great way for companies to put their earnings back into the business in a way that drives growth. In some instances, a big purchase may be a matter of necessity. After older and failing equipment needs cost-prohibitive repairs or stops working altogether, companies have to scramble to get a replacement. Also, an investment in a new fixed asset can help companies operate more efficiently or enable them to expand their operations. If you want to buy equipment for your company, you have to weigh your options judiciously.

Leasing

Entering into a lease agreement to get equipment may be preferable to buying it outright. A lease enables you to make moderate monthly payments rather than making huge payments. That could be easier on your budget, and it may provide you with a means to get new, state-of-the-art equipment that would otherwise be out of reach for you financially.

The drawback of leasing is that the money that you pay in exchange for the use of equipment does not build equity in a fixed asset. At the end of a lease term, your right to use it terminates abruptly and you will not have aggregated any equity interest in an asset.

Lending

The Small Business Association has loan programs that companies can use for equipment financing. An advantage of this option is that you can get financing to spread out payments affordably. SBA loans typically have better interest rates than traditional lending programs.

A potential problem with going this route is that a loan approval may take a considerable amount of time. SBA lending programs have rigorous standards and regulatory oversight, so you might not be able to get the funding in time to meet an urgent or pressing need.

Purchases with Financing

Many vendors that sell equipment to commercial clients have in-house financing available or they partner with financiers that give them favorable terms in exchange for getting to finance a large percentage of all of the equipment that they sell.

With traditional equipment financing, you will probably need to make a down payment. The greater your down payment, the less your ongoing payments will be every month.

When you review a financing agreement, it is important to review provisions about interest charges and additional fees thoroughly. The interest that you accumulate as you pay down a principal balance can grow considerably over the term of the agreement.