Before spending a large amount of capital on your next piece of equipment, stop to consider your options, advises Adam Warner, president and COO of Key Equipment Finance Co.
“The biggest mistake people make when looking at equipment is they don’t look at all their options — leasing, financing or paying cash,” says Warner.
First, consider the equipment and its impact on your business.
“You really shouldn’t pay cash for a disposable asset,” Warner says, adding that any asset that has a useful life of less than five years is a better candidate for leasing.
Mark S. Young, executive vice president, business development with Bank One Leasing, agrees.
“Know the equipment and its usage patterns,” says Young.
Another drawback to purchasing a disposable asset with cash is that it makes people hesitant to upgrade the equipment on a regular basis.
“Once you’ve made a big investment, it is hard to consider upgrading as often as you should,” says Warner.
And, says Young, don’t be tempted to buy the biggest and best model just because you can.
“You might want the top-of-the-line equipment, but you might not utilize all the features, so you have spent more money than you should,” Young says.
For equipment that has a life of 15 years or more, consider financing or leasing.
“There are tax benefits to leasing that you might not be aware of,” says Warner. “You really should get your accountant or tax adviser involved to look at the financial structure in all situations.”
If you do decide to lease, don’t forget to thoroughly read the lease contract before signing.
“A lease is a contract for use of an asset under specific terms and conditions,” says Young. “You can be in a hurry to get the equipment, sign the lease and then notice maintenance or return provisions that add cost.”
And when it comes to financing, don’t grab the first deal offered.
“Most equipment suppliers provide financing, but it’s not always the best or most competitive terms,” Warner says.
Young adds that it’s vital to know who you’re doing business with — both the supplier and the lessor or financing company.
“It’s important to read what you are signing up for, understand the asset and the total cost of ownership, and be comfortable with the supplier and the lease or financing terms,” Young says. How to reach: Key Equipment Finance Co., www.kefonline.com, Bank One Leasing, (614) 213-1474 or www.bankone.com
