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Hi all, I'd like some opinions on equipment.
I'm putting together my retail and processing location. I need about 10k worth of equipment. In the big picture that isn't much and I could drop it all on a credit card. I've been considering leasing. Pros? Cons?
The interest rates on leases are on the high side most often. One of the biggest disadvantages to a lease is that if you want to pay it off early you may save a few bucks but it will be very few where if you pay off the credit card your interest fees will stop and if you pay extra on it then you would save on interest costs where with a lease if you pay extra it doesn't do anything for you.
There are a lot of credit cards that will let you have the money for that a zero percent (you pay a 3% fee) for a year and a half or so. If your credit is good enough to qualify for one of those that would be the best way to go. If you don't have that option if the credit card interest is 15% or less that would be the best way to go but if the credit card interest is 25% as some are then the lease would be the better option
If you do go with leasing I would recommend you check out Wells Fargo leasing (a subsidiary of the bank). We work with a bunch of leasing companies and their rates are half that charged by everyone else.
I did what you're thinking of with the credit card on 2 used machines, sight unseen based upon a few glowing recommendations, on my credit card back in May. Machines did not come as described and dealer (are there honest machine dealers?) covered his rear by using the catch all "all sales final, no warranties" clause. The cash I had set aside to pay off the machines ended up being used to get them running, not to mention the implosion of my air compressor (I'm shut down without one). I forgot to mention that mid-June through mid-September is my normal slow time and this year was no exception. We're now into October and I'm still paying 19% interest on my original machine purchase.
Moral of the story:
If you're going to use your credit card to fund a purchase, expect Murphy to move in and for him to start raising free-range gremlins.
I really don't think I would have any problem using one of my credit accounts. Don't get me wrong but I have a couple of companies lining up to give me money. (Take my money?) Two are under 10%. Im thinking more of if I wanted to tie up credit lines or lease. Also how about the tax advantage?
I know lease money is expensive. I might look at Wells Fargo. I have a couple of accounts with them but I don't like working with those guys.
Leasing, I believe you could deduct the full lease payments as an expense each year. Financing, you would have to capitalize the purchase price and depreciate it over time, only being able to directly deduct the interest as an expense. Purchase outright, you only have the depreciation expense. BUT for small businesses like ours and purchases of the type we're talking about, you could likely take Section 179 deductions. At least under current tax rules (subject to change?).
In my opinion, purchasing outright with cash, if you can swing it, is usually the best option....
Good point, I have used the 179 deduction before. It really comes in handy at tax time. I'd love to pay cash for everything but my cash tree isn't bearing fruit yet.
I'm not in the kind of business that would have this issue, but personally I like to own everything. I like it new, fresh out of the box with a warranty. I recently had 2 unrelated issues with a new desktop computer and a new server. Thankfully I purchased them brand new and had no issues with the returns and replaced with new items. Had they been used or leased I'd likely still be dealing with issues.
As far as your taxes and expenses, that's another story and many times these decisions are based on that.
I'm not in the kind of business that would have this issue, but personally I like to own everything. I like it new, fresh out of the box with a warranty. I recently had 2 unrelated issues with a new desktop computer and a new server. Thankfully I purchased them brand new and had no issues with the returns and replaced with new items. Had they been used or leased I'd likely still be dealing with issues.
I can see how leasing makes sense if it comes with maintenance.
As far as your taxes and expenses, that's another story and many times these decisions are based on that.
We have always been own it type people. I do see value in leasing for when your business changes or technology changes how you work. I just don't like paying for the flexibility. For example, about seven years ago I purchased a cardboard perforating machine to make dunnage for my freight. Now I am considering a machine that wads sheets of paper together to make dunnage. Wish I could return the perforator instead of try to sell it.
If you decide to lease, read the lease agreement carefully. Many don't permit pre payment and automatically renew unless proper notice is given. Depending on local tax you may be subject to sales tax on the lease payments, driving up the cost.