Best way to finance Equipment

[orion_joel]

Hi All,

I have been looking at a new business over the past week or so. Basically the primary need for the business is a Commercial embroidery machine for around $12,000, plus a couple of thousand for supplies.

I am trying to figure out the best way to finance this. I am aware that there is leasing, the company offering it also offers an interest free option, and i could also consider a bank loan.

I know the leasing or Bank loan option would be the most beneficial for tax purposes. However i have also been considering outright purchase, as i have the money available. However i realize as well this could potentially be the least tax efficient option. Thanks for any insight on this it would give me a good start in the right direction.

[Steve B]

Perhaps since you are willing to pay for it in full you can negotiate a better price. The better price might make up for the loss in tax benefit.

[orion_joel]

This is maybe an option and i mean i guess you never go into anything without looking to get the best price you can however in this case i think there may be a few factors that stand in the way of doing so.

1. It is a small market for this machine, and everyone else i can find offer's the machine at a higher price.
2. He does include $1,000 credit that can be used on anything he offers in way of supplies, and accessories.

Plus he claims no end of potential buyers coming his way. So it is worth the try to get a better price but i don't know that i will put money on it.

The cash purchase doesn't negate all the tax benefit's, it just means it can be depreciated at X% over 3 or 4 years, as opposed to being able to claim the full lease paying or interest portion of loan as a deduction as well.

[Baseline]

FWIW.......

If I can, I try to buy outright, and take advantage of a provision here in the US to write off that year the total amount. I have a lumpy business- in the good years I upgrade equipment, and just hang on in the bad years. YMMV- but its also a better fit for my personality. I don't like debt, and the extra record keeping to deal with to depreciate instead of a one-time write off isn't worth it- to me. But you need to run the numbers and see if its worth it to you, and if cash flow supports that, etc.

[orion_joel]

There is a similar set-up in Australia, however their is a cap on the value of asset you can write off in one year, and i think it may be specific to one asset class. Additionally i do not know that i will earn a sufficient income from the business this financial year to take advantage of a full write off anyway even if possible.

On the no debt front i totally agree their i really do dislike debt, however i have come to realize that a certain degree of debt can be beneficial depending on the purpose and cost of said debt.

[phanio]

Another option, purchase the equipment. If you find that it is not that beneficial, try a lease buy back.

Does Australia not have better depreciation rates then stright-line? Here you can write off that amount - up to $250,000 for equipment purchases (called the SUV Loophole or Hummer deduction). In this country falls under IRS Section 179.

In 2007 and 2008, the total deduction was $250,000 in write-offs plus a 50% bonus - up to $800,000 in equipment financing. The bonues goes away this year.

Almost any equipment quailfies - purchase, finance, or lease.

For more info: Qualifying for the 2008 Section 179 Tax Deduction | Section179.org (http://www.section179.org/section_179_deduction.html)

[orion_joel]

The depreciation in Australia is kind of tricky i think, there are different rates that you can depreciate at different rates depending on what the equipment is, and also depending on the initial purchase value.

For example there are many items that if the price is less then $1,000 you can deduct fully in the year they were purchased. However over this limit there is varying rates i think between 30 and 40% depending upon the type of item and the cost.