With just several days left in 2011, many businesses are determining whether to acquire new equipment now or to wait until 2012. Mike Lockwood, president of TEQlease Capital, recommends businesses carefully research equipment financing needs and determine an equipment lease financing strategy before finalizing any equipment acquisitions.
Below are eight tips for businesses to consider to ensure they don’t make any costly financial mistakes on their equipment purchases:
- Do the math and determine whether the Section 179 deduction and bonus depreciation will benefit your business or not. Section 179 depreciation deductions and bonus depreciation are scheduled to be scaled back after this year. Meet with your tax advisor now and determine whether deferring a purchase may have an adverse tax impact.
- Don’t make an equipment acquisition decision based entirely on the availability of tax incentives.
- Understand your credit and organize your financial information before contacting an equipment financing provider. Lease financing appears readily available for equipment acquisitions for the upper tier of creditworthy borrowers, and loan demand for these borrowers is strong. However, expect the equipment financing provider to require more financial information than in previous years. Explain in advance any negative results.
- Describe to the equipment financing provider what this equipment acquisition will do for your business. Provide a projection of cost savings or incremental realizable margins.
- Don’t assume your bank or the equipment manufacturer’s captive finance company will offer the best terms. Compare rates, lease terms, fees and options.
- Consider bundling multiple equipment acquisitions from different vendors under one lease with an independent commercial equipment lessor. Rates tend to be higher for smaller transactions. Bundling generally results in lower rates, and also minimizes processing fees.
- Don’t pay upfront “application” fees to an equipment financing provider. Do due diligence on your financing provider. Use only established providers.
- Ask your equipment vendor for payment terms so you can defer a portion of the equipment cost, and coordinate deposits, progress payments, and performance retention payments.
If you have any questions regarding equipment leasing please let us know.