Having a close relationship with a bank can help a business owner find growth in new opportunities. Communication and trust are foundational to a great relationship with your banker.
Having to “spend money to make money” is especially true when it comes to purchasing assets and equipment for your business. They’re essential to your
Determining Which Assets You Need
Designated as “property” by the IRS, assets are a valuable part of your operation. Make a list of the assets that will help your business thrive, classified into one of three categories: tangible, intangible, and intellectual property.
Leasing vs. Buying Assets
To lease or not to lease? That is the question. Now that you’ve specified the assets your business needs, it’s time to plan how you’ll be making the purchases.
If considerable assets like commercial space and/or expensive equipment are required, leasing may be the safer financial choice — and help you avoid getting caught up in a high-interest loan.
- Advantages: Less upfront cash or credit is needed, short-term leases give you the opportunity to test your equipment, free maintenance is occasionally included, and lease payments are normally tax-deductible.
- Disadvantages: Lifetime cost is usually higher than buying, replacement can be expensive, and depreciation of assets isn’t tax-deductible on average.
Remember to keep an eye on the details of your lease structure (e.g. length and buyout options), whether it’s an operating or capital lease. They each have a different accounting treatment and can seriously affect your business taxes. Like a standard rental agreement, you don’t own assets under an operating lease, or add them to your balance sheet. Your rental costs are counted as operating expenses, and since you’re not the owner, the asset’s maintenance, risk, or tax obligations aren’t your problem.
Buying your equipment is the way to go if you have the cash or credit on hand to back it up. The high upfront cost can be a deterrent for some, but official ownership and tax incentives make it an attractive option.
- Advantages: Claim depreciation on your taxes, lifetime cost is usually lower than leasing, and you can include them as assets on your balance sheet.
- Disadvantages: Requires more upfront cash or credit, less opportunity to test the assets, and you could be liable for ongoing maintenance and replacement.
If you can’t afford to pay cash in full, consider using credit or applying for a loan to support the expense. The weight of the total cost will be less burdensome stretched out over time, but you’ll pay more in terms of interest and fees.
Business Funding Tip
SBA terms vary based on the asset you are financing. Consider long term SBA fixed asset financing to keep payments low.
Purchasing From the Government
Skip the open market in favor of an easier and more affordable way to buy tangible assets. Did you know that federal and state agencies sell their extra equipment, seized goods, and foreclosed property “as is” to the public? You can purchase these items through your state’s online auction site, or by searching the following federal government auction sites:
- GovSales.gov: the Federal Government’s sales portal for federal assets
- Defense Logistics Agency: Military surplus
- U.S. Marshals Service: Asset Forfeiture Program
- U.S. Department of the Treasury: Seized real property public auctions
- IRSAuction: Real and personal property sales
- Bid4Assets.com: Real estate online auction
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