Funding Equipment
Budget Sticker Shock Solution
You finally get all the details of what the department needs, find the supplier and BAM you can’t get the full purchase done in a single budget year. You are then forced to choose who gets new equipment, who shares and who goes without.
The Solution: Leasing
With a leasing program you get your entire selection of equipment and everyone gets to start with the equipment selection of your choice.
Leasing of cars is so common today, it is now spreading to other industries. It’s easy.
- Get a quote for the equipment
- Send to leasing company
- Leasing company creates a plan for you.
- Choose your lease term (typically between 3-5 years)
How much money do they think we have?
What does your department or agency do when there’s “no money in the budget?” Most administrators have probably heard that expression, a few too many times lately. Most government agencies have learned to “live” year-to-year, appropriation-by-appropriation, grant-by-grant, with spending horizons that rarely cross over fiscal periods. It’s either in the budget, or its not… If not, most police and sheriff’s departments simply can’t make the purchase, no matter how critical the need. But that doesn’t necessarily mean you have to walk away.
Many government agencies are not familiar with how EASY it is for them to lease essential new equipment, paying for that equipment, monthly, quarterly or annually as their current appropriations allow. Why pay in advance for essential equipment that your agency will be using for years? In most government lease scenarios, funds come out of OPERATING accounts and are not “booked” as capital expenses, due in part to built-in non-appropriation language and on Federal transactions, the termination provisions. And Law Enforcement Leases don’t create new “debt,” for accounting purposes.
The lease format allows you to pay the least over the course of time while you utilize the equipment, while providing you the most amount of options at end of term (or before). So if you wanted to buy the equipment out at the end of the term they’d be able to do so for the fair market value of the equipment at that time. Keep in mind that typically once you start leasing you continue to lease, so if you end up wanting to keep some or all of the equipment it is usually rolled into the next lease.
EXAMPLE
NEED
23 new computers
Total purchase price
$108,479
LEASING OPTION
Spread payments out over 36 months
$34,596 per year
34,596 x 3 = 103,788
108,479 – 103,788 = 4,691
RESULT
Full department got new equipment. Everything stays under warranty and is serviced or replaced without any additional outlay. When additional computers were needed they were just added into the leasing program.
THE COST OF WAITING
Option: Wait three years to buy.
With inflation, waiting just 3 years that same equipment will most likely cost $136,049 (that’s using a 8% inflation rate)
$136,049 – $108,479 = $27,570
Buy now -vs- later saves $27,570
Option: Buy now and finance.
If you finance the full amount and had to pay interest on your purchase of 5% that would mean you would end up paying $118,976
$118,976 – $108,479 = $10,497
Buy now -vs- finance costs an additional $10,497
Option: Buy now and lease
We saw in the above the leasing company could divide the payments out over the term.
Lease now -vs- buy saves $4,691
Lease now -vs- finance saves $15,188
Lease now -vs – wait 3 yrs saves $32,261
The example totals: Equipment is $108,000, Finance now it costs $118,976, Wait 3 years it costs $136,049, Lease it and it costs $103,788
Buying Computer Equipment — Pros & Cons
When you’re considering whether buying your computer equipment is the appropriate method, consider the advantages and drawbacks of your decision.
Benefits
The main benefits of purchasing computer equipment outright include owning the equipment and potential tax deductions. When you own your equipment, it is yours to do with as you please. You won’t need to make monthly payments to a lender for the cost of the computers or other tech equipment you buy.
In addition to owning the equipment outright, you’ll be eligible for certain tax benefits. Computer equipment purchased for less than $2,500 can be written off as a one-time expense under the Section 179 deduction.
If the equipment you purchase is worth more than $2,500, you can write off the depreciation for the equipment over its appropriate life span.
Drawbacks
Purchasing your computer equipment does come with some drawbacks. The most obvious disadvantage is that you’ll need to have the money available to pay for the equipment upfront. This can cost thousands of dollars, especially if you have a lot of equipment to buy.
Computer equipment that is purchased outright will need to be maintained by the owner. Unless you have an insurance policy or warranty on your equipment, you’ll need to pay for any necessary repairs out of pocket.
Finally, computer equipment doesn’t last forever. Certain types of equipment typically need to be replaced every few years to keep up with technological innovations. New equipment will need to be purchased in future years to stay afloat of any technological changes and as you hire new employees.
Leasing Computer Equipment — Pros & Cons
You may consider leasing equipment rather than buying it outright if you don’t have the cash flow available or your company is in a field where you need access to the latest technology. If you’re thinking about leasing your computer equipment, that decision also comes with advantages and disadvantages. Here are some of the pros and cons of leasing IT equipment.
Benefits
Obtaining a computer lease can make it easier to upgrade your technology. The benefits of leasing vs. buying computer equipment are many.
Companies heavily reliant on the newest technology will appreciate quick upgrade options — especially in the software and IT sector, where old equipment can make a difference in employee performance and product capabilities.
If you choose to lease your computer equipment, your company will have much lower upfront costs. Rather than spending thousands of dollars at once for all your equipment, you may only need to make your first month’s payment.
With an operating lease ownership of the equipment is not transferred to the company. The expense of the equipment is recorded monthly as a regular operating expense on the income statement.
Drawbacks
When you lease computer equipment, you don’t own it. You must use the equipment per the leasing provider’s terms and conditions. If you plan on using the equipment for other purposes, or if you anticipate faster wear and tear due to heavy use, you’ll need to consult the terms of your lease agreement to determine whether it’s allowed.
Financing Computer Equipment
If you don’t have the cash available to purchase your computer equipment outright, and leasing isn’t a feasible option, is a loan or financing option. Business equipment loans are designed especially for companies that need to purchase equipment. These loans allow for business purchases up to a specific amount and come with a designated term. Most equipment loans last anywhere from two to seven years. Most often, they have a fixed interest rate, allowing companies to plan for repayment. Equipment loans are often easier for newer businesses to qualify for since the equipment itself can be used as collateral.