Considerations for Equipment Upgrades and Financing

All kinds of small businesses rely on technology and equipment to keep their companies running. Although the cost of your initial equipment was likely wrapped up into your startup financing package, there will eventually come a time when you’ll need to consider replacing or upgrading the equipment you have. Unfortunately, financing new equipment is a major hurdle many business owners face.

If your business’s equipment could use an upgrade, take time to consider whether an upgrade is truly necessary and the financing options available to you.

When and why should you upgrade?

It’s difficult to pinpoint an exact “right” time to upgrade business equipment. You might have equipment you use every day that requires more attention, and some equipment you only use once in a while. This will require you to maintain a balance between your old and new pieces.

What’s important to remember is that a lack of or outdated equipment has the potential to significantly impact your business. For example, you might not have enough equipment to be able to scale your business the way you want. Older equipment might also become inefficient and hold your business back. If the technology or machines can’t keep up with your operations, you might be missing out on potential profits. If you’re trying to grow your business, pay close attention to the impact your equipment has on your overall efficiency and scalability.

Another, more obvious, sign that your equipment is due for an upgrade is when it starts to break down. When your everyday equipment stops working, your business can’t function, and you’ll lose money from the disruption. On top of that, you’ll probably start pouring money into repairs and replacement parts.

Equipment financing options

When it’s time to upgrade your equipment, you’ll need to figure out which financing method is right for you.

Buying new equipment outright is the most common option, although it is cost-prohibitive for many smaller companies. Because many business owners don’t often have the cash to buy new equipment up-front, you might need to consider applying for a small business loan (certain requirements apply) or capitalizing your business through a self-directed funding structure like a rollover as business startup (ROBS). These setups allow you to buy entirely new equipment and claim it as a business asset on your taxes.

Of course, there is another option: equipment leasing. This lets you lease the equipment you need for your small business while making stable monthly payments for the duration of your contract. There’s no requirement to buy the equipment at the end of your lease, but you can if you want to.

Equipment leasing isn’t the right choice for all businesses, but it can be a great option for some. For example, if you lack the up-front capital or collateral needed to finance equipment purchases, leasing is a way around that. Leasing is also ideal if your business requires extra equipment on a seasonal basis or for a limited time, or if the equipment/technology is frequently updated. This way, you’re able to stay ahead of the curve and not purchase equipment that won’t be used in a few months’ or years’ time.

Ultimately, when you choose to upgrade your equipment and which financing method you use to do it should come down to your business plan and your plans for growth. When you’re ready to begin exploring financing options for your new equipment, contact Tenet Financial Group!