A person types on a calculator and holds 100 dollar bills, determining how to save on equipment costs

Small Business Financing 101: How to Save on the Equipment You Need to Start or Grow Your Small Business

When you’re starting or growing your business, you need to navigate every expense carefully to stretch your dollars. And, for many businesses, a major expense during startup is equipment. With a set of proven strategies, you could save significantly on the equipment you need to run your business.

In this article, we share some strategies for savings. We also explore some of the ways you can finance big-ticket items to defer some of the costs, share key tax incentives, and work through simple ways to optimize your equipment’s life and performance to avoid costly repairs, replacements, and the downtime that can result from them.

 

How can I save money on the equipment I need?

Here are some strategies you could consider:

 

Rent—don’t buy—to cover your short-term needs

Many places allow owners to rent computers, electronics, commercial kitchen equipment, and truck-based equipment at daily, weekly, or monthly rates. A deposit is usually required, but it’s often refunded when the equipment is returned in good working condition.

Of course, rates can add up over time, and when they do, costs that can rival the purchase price of a new machine. Because of this, you may want to consider rentals for short-term needs rather than long-term solutions.

 

Consider buying used

New equipment can be expensive, but often, second-hand equipment is less costly. You could find fully functional, favorably priced equipment through business auctions, going-out-of-business sales, overstock sales, and repossession sales.

There are some drawbacks to buying used:

    • You’ll likely miss out on factory warranties that are offered with new pieces of equipment.
    • You may purchase equipment that seems operational but has problems that will require costly repairs.
    • Aged equipment may require more frequent repairs that could quickly eat away at the savings you amassed.

 

You can overcome some of these drawbacks with these tips:

    • When buying online, make purchases from sellers who have a good reputation in sales with other customers.
    • When possible, examine the equipment in person before making a purchase.
    • Ask the owner to operate it through a variety of settings to ensure it's in good order.
    • Review the machine’s repair log to ensure the equipment received regular care and maintenance.

 

Make new purchases from warehouse stores or wholesale clubs

In the United States, three of the best-known warehouse stores are Costco, Sam’s Club, and BJ’s Wholesale Club. All three offer exclusive benefits and low pricing on office goods for small business owners. There is a fee to sign up, but the savings and options for cash back on one or a few large-ticket items can usually make up for the cost.

 

Find deals and codes

If you plan to buy new equipment, try to begin your shopping process long before you need the item. Study prices across retailers and watch for special deals. If you’re shopping online, you could find additional codes for discounts through various savings sites or with browser add-ons, such as this free one from Capital One Shopping, that check every known code on a site for savings opportunities.

 

Ask for a better price

When buying in person, you may be able to negotiate a lower price for the equipment you need. While this may seem like an intimidating task, this set of strategies might help you succeed:

    • Make a list of the features you’d like to have and which ones you’d be willing to sacrifice for a better price.
    • Know your budget and how much flexibility you have to get precisely what you need.
    • Study other retailers’ or manufacturers’ prices or ask for quotes from multiple sources.
    • Ask the seller of the lowest-priced equipment if they can offer a better price or more favorable terms.
    • Contact the sellers of higher-priced equipment and ask if they can meet or beat the best offer you receive.
    • Ask for one additional perk, such as free delivery, priority shipment, or a longer service contract or maintenance plan.

 

Avoid gimmicks

Take time to research what you really need from a piece of equipment. Expensive equipment will likely include some impressive features. However, you might find that few are worth the cost—or will ever be used in the day-to-day operations of your business.

 

What are my financing options?

If you have cash on hand, you might want to pay for the equipment you need in full. There are a few advantages to using cash. First, many retailers offer discounts to buyers who pay in cash. With cash receipts, they can avoid dealing with hefty credit card processing charges, loan set-up fees, or ongoing account maintenance costs. Sometimes, cash buyers can save up to 15% off an item’s retail price. Second, cash is one of the few payment options that doesn’t trigger the additional interest payments or fees, provided that the cash you use doesn’t cause you to go into debt on other purchases for your business.

If using cash isn’t an option, many equipment retailers and wholesalers offer financing arrangements that can help you spread the costs of a purchase over a relatively long period of time. Check out those options here:

 

Lease for the longer term

Many equipment manufacturers and distributors offer leasing programs that allow owners to finance brand new equipment for a set period of time. Equipment leases can be a great choice for business owners. Here's why. The leases make it easy to obtain no- or low-cost repairs and support. Plus, there are often simple options for continuing the lease or making upgrades at the end of your term.

Here are two tips to keep in mind. One, be sure to work with reputable lease companies. And two, read the contract in full to understand the terms and conditions, especially regarding returns, exchanges, warranties, and ramifications for damages.

 

Ask about vendor financing

Some equipment vendors have loan programs. Others can refer you to lending partners who can help you finance equipment with favorable rates and terms. Most options require a sizeable down payment and monthly installments to cover the principal and interest owed.

Since vendor options are usually structured as loans, you should compare the rates and terms with loans you can obtain from your preferred local lender, community banks, commercial banks, and credit unions before proceeding.

 

Consider asset-backed financing

Many banks and credit unions offer asset-backed loans to owners willing to leverage valuable assets to cover their costs. There are lots of advantages to this form of loan, especially for new business owners. These loans often have looser lending requirements and are easier to attain, even for borrowers with less-than-perfect credit.

You learn more about asset-backed financing here:

 

Look into an SBA loan

The Small Business Administration (SBA) offers several loans that can help owners cover startup costs, working capital needs, and equipment requirements. To qualify, you'll need to meet a set of requirements, and your business must be eligible for SBA funding.

You can learn more about these loans in this guide:

 

How should I proceed?

There are several factors to consider before agreeing to any financing arrangement.

First, make sure you understand the terms of the agreement. Read up on the down payment requirements, interest rates, term, security requirements, late payment charges, and ramifications for missed payments.

Second, ask about the collateral requirements of the agreement. These will likely include the financed equipment and may include other pledged assets. If you already have financing arrangements in place that use business assets as collateral, make sure you understand how they'll impact the current agreement and agreements you have with other lenders.

Finally, ask about the restrictions you need to follow on the use of the equipment or other collateralized business assets. Make sure you can operate within those parameters.

 

Can I deduct the costs of my business equipment?

You may be able to deduct some or all of your equipment costs on your federal tax return and realize significant tax savings. You might expense the cost in the year of its purchase. Or, you can recover the cost over a period of years through depreciation deductions.

You could also realize some savings on your state tax filing by using the same formula for expensing allowances or depreciation deductions. But that isn't the only tax-smart strategy to keep front of mind. Ask your accountant about state income tax credits or ways to make the purchase without incurring state or local sales taxes.

It can be complicated to work through the calculation methods to optimize tax savings. Work with an accountant to take on this task and see how each choice could affect your tax bill.

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Any other tips to save on equipment costs?

Beyond the upfront costs of equipment, you'll need to think about how much it will cost to repair, maintain, and run any large-ticket item you purchase.

Here are our tips:

  • Buy energy-efficient appliances to reduce ongoing costs.
  • Be sure to follow the factory-recommended cleaning and maintenance schedule for each item.
  • Ensure that your environment is optimized for the performance of your equipment. Adjust your site’s temperature or humidity level or take steps to reduce dust build-up to help each piece run at its best.
  • Handle repair needs promptly before larger-scale problems occur.
  • Be sure that your insurance policies cover your new equipment. If necessary, add a rider to cover the costs you might incur.

 

What’s next?

Starting a business is a complicated process. We can help you with every action you need to take. Log into your owner’s portal for a free, personalized action guide to make your venture a success.

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