EQUIPMENT FINANCE
Could Paying Cash be a Better Equipment Finance Option?
By Bill Summers and Paula Summers Murphy
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omparatively speaking, it is certainly true that paying cash to acquire equipment is generally less money out the door on a strict dollar-for-dollar cost comparison as opposed to obtaining credit and using a financing mechanism. However, when you consider what the true costs of paying cash for equipment really are, it makes sense to at least stop and consider the merits of using financing to acquire equipment before you outlay the cash. There are benefits to paying cash for equipment. These include:
◉ Simplicity — It’s easy to pay cash ◉ Ownership — Pride in paying cash as well as immediate ownership ◉ Zero interest expense — Paying cash is cheaper because you don’t incur financing charges
For purposes of this article, we use the term “financing” to include loans, capital leases, operating leases or rentals. This means any type of structure that allows you to pay for equipment over time rather than with an outlay of cash up front. There are valid business reasons that nearly 8 in 10 U.S.-based companies choose financing instead of paying cash to make equipment purchases. The purpose of this article is to add additional insight to your firm’s decision-making process as you consider paying cash versus financing equipment. The truth of the matter is, other than simplicity and psychological reasons (including “pride of ownership”), paying cash for equipment usually does not provide significant benefit over equipment financing. Even for many organizations that are flush with cash, using cash to pay for propane equipment might be a poor business decision. The merits of obtaining credit
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TOTAL FINANCE
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