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Business Owners & Managers

A Guide to the Options Available to Purchase New Equipment

By Jim Nelson from J and J Lawn Service

This is an inevitable part of any business plan; to either start up your business, to maintain your current level of operations, or the expansion and growth of your current business. In the green industry some of this equipment can include vehicles, trailers, tractors, loaders, mowers etc.

As the Spring is here and with the Summer fast approaching most of the manufacturers have some very big events taking place. With some of the prices discounted 10% or more, and compiled with special financing options, it’s a great time for new purchases.

There are many different options available when you’re completing a purchase. You and only you can decide what is best for you and your business. Everyone has a completely different set of circumstances going on in their personal and business lives at any given time. To help you make your choice, I want to outline a few of the basic options available to you.

Pay Cash

Some choose this option because they don’t want to carry any debt. I personally like to save my money and use someone else’s money; I will elaborate in further detail later. With that being said, cash is always a consideration if the manufacturer will offer a deep discount on a cash purchase. Generally this isn’t the case, but it never hurts to inquire about the possibility.

Lease

An option that’s often taken on fleet vehicles. This allows you to use a particular piece of equipment for a period of time, usually 1-3 years. A lease normally requires a down payment but offers significantly lower monthly payments. You’re responsible for the equipment, other than normal wear and tear during the lease.

At the completion of the lease the piece of equipment is turned back in, at which point you can have the option to purchase the equipment at that time for market value. You never obtain any equity or ownership in a lease. Leases are viable options for many businesses.

Financing

This is my favorite option since I use someone else’s money! As long as you have good credit, most equipment manufacturers or lenders offer 0% financing options for your purchase. If you have bad credit, this may or may not be your best option depending on whether you can be approved and, if so, what interest you would be required to pay on the loan.

Here are some of the reasons I like the financing at the 0% option; my example is on a mower purchase of $7,200 at 0% interest for 48 months.

Loan Amount: $7,200.00
Monthly Payment: $150.00

Take the $7,200 you have available if you’re thinking of paying cash and split it this way:

  • $1,800 placed in Savings Account (payments 1-12)

  • $1,800 invested in 12 Month Certificate of Deposit, and the current interest rate is 2.70% (payments 13-24)

    Value when redeemed $1,848.60

  • $1,800 invested in 24 Month Certificate of Deposit, current interest rate is 2.80 interest (payments 25-36)

    Value when redeemed is $1,902.21

  • $1,800 invested in 36 Month Certificate of Deposit, current interest rate is 2.85 interest (payments 37-48)

    Value when redeemed is $1,958.33

When the final Certificate of Deposit is redeemed you have profited $309.14

You can purchase I Bond Savings Bonds, where the current payable interest rate is 2.83%, earns interest on the first day of purchase, and is compounded semi-annually. This can be redeemed after 12 months, and you have a maximum purchase of $10,000 a year on the I Bonds.

With the I Bonds and Certificate of Deposits your money is insured and guaranteed.

Keep your money invested in the stock market which averages returns in the 10% range. With this option, let’s assumed you averaged the 10% return each year. You would only have made $1,153.80 over the same period.

The stock market is probably not a wise option unless you’re comfortable with investment portfolios. The money is not insured or guaranteed.

Don’t be afraid of new equipment purchases - it’s simply a part of doing business. As growth in your business continues, new equipment has the ability to make you more productive and efficient, which equals more profit!

Do your due diligence on your purchases to get the most for your hard earned money.

Jim Nelson
J and J Lawn Service
UAG Member 2019
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What option(s) do you prefer when it comes to buying new equipment? Join our forum to share your tips or ask other pros for advice.