Your business’ financial status is the most important thing to consider even though the value of any given equipment lease depends on the terms and conditions. A lease makes sense if spreading the cost of that purchase may provide valuable flexibility for your business, even discounting interest. This article will go into the pros and cons of financing an air compressor purchase.
Pay Over time: A Plus or a Minus?
The fact that you can finance your entire order and pay for it over time is a definite advantage to financing. Look for simple terms and an even simpler approval process. You get the units at once and then pay for them in fixed monthly installments.
Another option is PayPal Credit, a reusable credit line of credit. With this option, you can finance your purchases by making payments over time. PP Credit offers easy payments for products $1500 and more. With these, you can make equal monthly repayments.
You can calculate your monthly payments for any product using PayPal’s tool on the product page.
Who finances air compressors?
Surprisingly, few companies finance an air compressor even though there are tax benefits attached to a finance deal. You have a number of options if financing a compressor makes sense for you. Look for low monthly payments that let you use the equipment for a certain amount of time. Then, you can either purchase the unit or return it and upgrade.
Tax season is when the benefit to financing or leasing comes. If your business uses the equipment being financed or leased, the IRS says lease payments are 100% deductible. Also, completing a financial agreement successfully helps your credit rating stay solid.
Choose the Financing Carefully
In terms of the difference between leasing and a loan- you choose. Each one has its benefits. For example, you want to buy a piece of equipment and want to finance it over a certain number of years. Your total tax write-off will be capped at the cost of the unit if you get a loan. If you’re leasing, you can write off all the payments as an operating expense.
As far as non-financial benefits of financing go- you always have the option of upgrading to a better compressor. What’s more, you don’t pay for maintenance and repairs. It’s also possible to finance your air compressor through your own financial institution.
To be fair, there are downsides to go with the advantages. Most financing options do require interest as part of the deal, which means you’re paying more over time than you would be if you bought the compressor and paid cash. There is no equity because you don’t actually own the compressor.
Compressor financing is a good option for these purchases because it helps you limit the strain on your resources that comes with a major, one-time expense like this. However, compressor financing isn’t for everyone.
Easy to Upgrade to Better Models
It’s much easier to upgrade to better models when you finance a purchase, especially if you’re careful about how you structure the loan. For example, let’s say you need a certain type of compressor, but you expect there to be a better type in a few years. You can easily trade in your old model and upgrade to the new one at the end of your lease by signing a leasing agreement that is for a two-year term.
Also, with compressor financing, you don’t have to worry about selling the old one because you don’t own it.
Lower Upfront Cost for Compressor Purchases
One of the most attractive benefits of financing is that you are able to spread out the cost of your purchase. With financing, you make monthly payments to a leasing company to use the equipment instead of buying and owning it. The total cost is normally lower than what you would have paid to own the equipment.
Greater Flexibility
Equipment financing are especially useful when you want to purchase a piece of equipment that you’re not absolutely certain that you’ll need long term.
With traditional financing or buying the equipment outright, you might get stuck with equipment that you will not need long term. Compressor financing gives you flexibility because if the unit becomes unnecessary for your business, you can get rid of it when the financing agreement ends.
Cons of Financing
The biggest con is probably that you’re paying interest even though the financing might not be the same as a loan. Normally, the interest is 5 percent a year. The average interest rates for equipment leases vary.
Clearly, you won’t pay interest if you purchase the equipment outright, but there will be potential cash flow disruption. Paying interest could be less expensive in this case. Everything depends on your business’s current financial status.
You Don’t Own the Unit
Owning a compressor comes with certain benefits such as tax savings, as mentioned. However, you might not get those pluses if you lease equipment. The value of that asset is not on your books when you lease equipment rather than own it.
This can be a plus in some cases, but it may also scare off other loan providers or potential investors because they see your lease as a liability.
New Businesses Have Limited Access
If your company is less than two years old, you might have trouble getting this type of financing. This holds true even if you have a good track record and a solid credit rating in many cases. You may have to pay more upfront or offer the loan provider other concessions for the deal to happen if you are a new business owner and need compressor financing.
Is Compressor Financing the Best Option?
Make sure you know your financing options. With another glance through these pluses and minuses and a little self-evaluation, you’ll discover the right option for your business. Financing options include credit lines, business loans, and cash advances apart from the ones we mentioned in this post.
