There are two types of capital available for small businesses; working capital, which, is used for its day-to-day operations such as employee hiring and meeting overhead costs, and fixed capital, which is used for the acquisition of assets and equipment. One of the questions that are bound to come up is how the equipment will be acquired is whether to buy or lease. Each option has its cons and pros depending on your specific business circumstances.
The following factors can help you decide which option best suits you:-
1. The equipment’s time of usage
Should you intend to use the equipment for a limited period leasing would be the better alternative, rather than buying and then reselling it once its use is over.
2. The amount of money you are willing to spend
Equipment purchasing requires you to have higher amounts of money than equipment leasing. The former may even require you to engage a financier. Purchasing is not a viable option if you do not have large cash reserves. Leasing requires only a significant principal payment and smaller monthly payments. Purchasing
3. The time-frame within which you need to have acquired the equipment
Equipment buying is often a less rigorous process than equipment leasing, where you have to provide your detailed financial data which then has to be reviewed for approval. The lease terms have to be negotiated and forms filled and signed. Should you be time constrained to acquire the equipment and you have cash reserves, equipment buying may be the better option.
4. Changes in the equipment’s technology
It would be wise to take short leases on equipment that requires being updated every so often. This is practical than having to buy new equipment once technological changes make the one you are currently using obsolete.
Deciding which route to take when it comes to equipment acquisition is not clear-cut. Should you have any queries, Vankeith Commercial Capital is ready to help.