What’s the Cost of Equipment Financing?
Business owners know more than anyone that equipment financing can be a big headache. For one, many companies that lease equipment will go to full lengths to hide the true costs of services from equipment buyers until the buyer is so deep in the process that it becomes almost impossible to back out. Another problem is with equipment leasing calculators that often prove deceptive. These online calculators are usually programmed to only show the lowest possible cost of financing equipment, and this low cost usually only applies to less than 10 percent of potential buyers.
The cost of equipment financing largely depends on your credit score. If you have bad credit, equipment financing will cost you even more than usual due to high equipment leasing rates. Those with low credit scores should take online equipment leasing calculators with a grain of salt, as sometimes your true payment could be up to twice what the calculator is telling you. Equipment leasing companies that go to these lengths to hide the true costs of their services usually do so out of fear of losing (or not attracting enough) customers, which is why it is crucial to carefully consider your business decisions and proceed based on the facts of your business model.
When considering equipment financing, one important question to ask yourself is how much will you profit from having the equipment. Let’s say a piece of equipment costs you $500 a month to buy outright. If that piece of equipment brings in $1,500 of monthly revenue, you are profiting off your business investment, especially once the equipment is paid for in full. If your monthly revenue is less than or exactly what the equipment costs every month, you may need to reconsider your equipment purchase.
Another way to determine if equipment financing is worth it is to consider how fast your equipment will begin to depreciate once you make the purchase. Will you be able to afford the payments on a depreciated item? How often will the equipment be used? Will you need to sell it in the future? If the equipment is something you see the business using for the entirety of the business’s existence, then getting the equipment financed by a reputable lender makes sense as long as the equipment brings in an acceptable amount of profit. You know your business better than anyone, so be sure to make careful and informed decisions when it comes to financing equipment for the sake of company profit.