Everything you need to know about buying business equipment
With so many options available for financing, along with the possibilities of leasing or renting, acquiring business equipment can be a stressful and overwhelming issue. If your equipment will be used consistently over the long term, won't depreciate quickly and is essential for your business, buying it with the help of a business equipment loan could be the right choice.
Read on for the questions you should consider before purchasing your company's equipment:
Will buying provide me with the best equipment?
Purchasing your own equipment ensures that you can tailor it to best suit your business needs. Depending on what you plan to use the equipment for, you may have a particular brand or model in mind, not to mention special features.
Equipment rental and leasing companies may not have the best range of selection and their equipment may have already been used quite heavily. If business depends on equipment with the latest technology, you might not find the newest models available for lease or rental.
On the opposite end of the spectrum, the perfect piece of machinery for your business might be an older, high-quality model that is no longer on the new market but offers the best value and specific features for the job. This older equipment might also not be available through rental or leasing agents and could be affordable for purchase anyway.
What is the life span of my equipment? Does it depend on the latest technology?
If the piece of equipment is known to get run-down quickly, the cost of repair and eventual replacement might be higher in this case than the cost of long-term rental. Similarly, if the piece of equipment your company needs is on the cutting edge of technology, it may become obsolete quickly as new models soon replace it.
Is financing available?
While buying equipment outright is unaffordable for many companies, the availability of equipment financing reduces the short-term costs of purchasing your own equipment. With different options including commercial hire purchase and chattel mortgage, businesses can choose the type of financing that suits them the best.
With a good rate, your business can build equity over time and avoid dealing with complicated long-term rental or leasing contracts.
What tax benefits are associated with purchasing my own equipment?
Your business could accrue tax benefits if you buy your equipment outright. According to the Australian Taxation Office (ATO), equipment usually qualifies for tax deductions under the category of capital expense because it generally has a life of over one income year and is bought to improve or expand your business.
Because a capital asset is generally considered to depreciate in value over the years, the expense would be claimed yearly over the span of the asset's life, as a function of its depreciation, instead of during the income year you paid for it. Tax deductions for depreciation are only available if you own the equipment or are hiring-for-purchase.
Tax deductions for depreciation are only available if you own the equipment or are hiring-for-purchase.
Furthermore, the ATO states that you can also claim interest incurred from loans as expenses during the year that you incur it. This applies if the money borrowed is to produce assessable income or to buy income-producing assets such as equipment.
How much maintenance and repair will the equipment need?
If your purchased machinery needs to be fixed or even just a routine checkup, you will be responsible for the costs associated with this. Rental equipment that needs to be repaired or maintained is generally the responsibility of the rental agent - although depending on the rental company, you could still be charged for the repair costs.
Is buying a good financial decision for my business?
If the equipment you're thinking of procuring is something your business will need long-term and on a regular basis, buying the equipment rather than renting or leasing it will save you money in the end.
In the short term, purchasing your business' equipment will undoubtedly be more expensive than renting, making it a potentially unwise option for companies that are not very profitable or won't need the equipment for a long period of time. For small companies on the rise, even with financing, expensive equipment purchases could disrupt cash flows and might be an unadvisable financial move.
Businesses should evaluate the equipment on the basis of how long they will need it and how consistently; even if the machinery will be used a few times a year, every year, renting might still be a less expensive option. Construction Business Owner Magazine advises that if you believe your company won't use the equipment more than 60-70 per cent of the time, you might want to consider renting. Otherwise, it's likely a good idea to invest.
While it can be expensive and might not be right for all purposes, buying your own business equipment can often be a better financial decision in the long run. Contact the team at AAA Finance today to find out more about our truck and equipment finance.
About the author
Peter Watman has extensive finance and automotive experience having worked in both industries for over 30 years. Peter founded AAA Finance and Insurance in 2012. He leads an experienced team that provides quick and easy finance solutions along with exceptional customer service.