Purchasing equipment such as machinery or vehicles for your new business can be one of your biggest expenses. Due to high start-up costs and limited cash flow, in the beginning, purchasing a piece of large equipment outright may not be a realistic option. Fortunately, that doesn’t need to stop you from obtaining the items you need when you opt for equipment financing.

How Does Equipment Financing Work?

Equipment financing works the same way it would rent any other item. You make a payment each month to keep the equipment and stop paying when your contract ends. Some small business owners choose to purchase the equipment at this point if it hasn’t become outdated. For others, leasing is an excellent way to always have the most recent release of the equipment available and to upgrade to a new piece of equipment after fulfilling the terms of the original agreement.

Financing Benefits of Equipment Financing

The obvious financial benefit of financing business equipment is that it allows companies to retain more cash in reserves. As of December 2017, it also offers important tax benefits. This is when the Internal Revenue Service (IRS) passed the Tax Cuts and Jobs Act (TIJA). One of the provisions of TCJA is that businesses could now deduct 100 percent of lease payments with no imposed limits. With business loans, the IRS only allows companies to deduct up to 30 percent of company earnings up to a maximum of $25 million per year.

This option may not be the best one for you if you’re more focused on acquiring assets that you can resell later to recoup some of your initial investment. If you’re having trouble deciding on the best financing option for your small business, Prime Wealth Development can help. Just give us a call today to request an appointment.