Putting equipment and capital to work helps businesses grow. But did you know that financing - instead of purchasing equipment for cash - can be a powerful tool, enabling you to acquire and upgrade important assets while securing tax advantages, managing risk exposures and strengthening your balance sheet?
Many business owners are having tax planning conversations and thinking about capital needs for the year ahead. Recently I worked with a local business that is planning for its expansion, and equipment financing was a key part of the growth plan.
Here is what you should consider to determine if this strategy is right for you:
- As you conduct business in more ways and places, have your business equipment needs changed?
- How do your accounting, tax and cash flow goals impact your ability to negotiate the lowest cost?
- Is it time to update old technology, replace worn assets or add new equipment to expand your capabilities?
- Did you know you may be able to negotiate better pricing for equipment and react quickly to special offers from manufacturers by qualifying for financing early?
- Should you consider financing 100% of your equipment cost?
- What are the tax and non-tax lease implications?
- Should you consider a TRAC lease (for commercial vehicles)?
Many business owners are considering these opportunities to take advantage of Federal tax incentives, efficiency gains provided by new equipment and rates that are historically low, although recently on the rise.
The Omnibus Spending and Tax Extenders package passed by Congress at the end of 2015 retroactively and prospectively extends bonus depreciation at the recent 50 percent level for qualified new Modified Accelerated Cost Recovery System (MACRS) property placed in service in 2016 or 2017, provided it meets all existing eligibility rules.
If bonus depreciation will create more depreciation than you can use on your tax return, consider buying new equipment through a tax-oriented lease. Under the lease, your lender will claim the bonus depreciation, thereby reducing your cost to borrow. A tax-oriented lease may lower your cost of capital, versus a standard term loan, and allow you to expense lease payments fully on your federal tax return.
Whether you are looking for equipment leasing or conventional equipment loan financing, it’s important to have a partner that can help you find flexible, customized options for your equipment needs and the overall growth of your business.
Derek Cohen is Senior Vice President of Commercial Banking for Bank of America Merrill Lynch, where he delivers strategic financial advice and solutions to help companies grow, improve liquidity and cash flow, manage U.S. and international payments, and invest for the future. Derek also serves as Market President for the greater Wilmington area for Bank of America, working to strengthen communication and integration among the company’s local businesses. Contact Derek at (910) 442-1860 or [email protected].