Commercial Air Conditioning Financing v Cash: What's Right for Your Business

Commercial air conditioning is an essential part of a comfortable space. If your business is at a crossroads with upgrading or installing new units, then it’s time to consider the argument of financing vs. paying cash. Let’s look closely at the pros and cons of financing and cash. 

Financing Pros and Cons

When you finance the air conditioning system, you are spreading the cost over a period of time in which you’ll be using it. It also allows you to pay what you are able to through monthly payments that fit your budget. If you wait to purchase this equipment until you can pay cash, you may be waiting a considerable amount of time. With something as necessary as AC, that’s not a good option. Get access to what you need and can afford over time with leasing.

As a depreciable item, you’ll be able to deduct the costs from taxable income, which is certainly a bonus. Consider how this can give you an advantage in offsetting profits.

When you lease the product, you may also opt to include maintenance or support costs in your monthly payment. This means that if it malfunctions or breaks occur , you’ll get an immediate response to fix it.  

Investing cash into a commercial unit doesn’t make sense. Rather, cash should go toward business growth initiatives like new product development or hiring new employees. These efforts are more likely to be profitable so they are more cash friendly. 

When choosing how to lease the equipment, you may find it more beneficial to use an alternative financial provider outside your main banking partner. This way, it won’t infringe upon your current loans or accounts.

With any lease, you are subject to interest rates. Depending on the amount and terms, this could add significant cost. However, you are allowed to use it to offset taxable income. When looking at terms, select a fixed term agreement. You must also consider how taking on new debt will impact everything else: your monthly budget, long-term savings, future term rates. Too much debt can cause a business to go under.

Cash Pros and Cons 

When you buy an asset outright, you have control over it. You’re not relegated to thinking of the equipment as something “borrowed.” You may be able to see some return when the time comes to retire it. It depends on the second-hand market and the condition of the unit. If it doesn’t work any longer then there’s no opportunity to earn something back. Also keep in mind, if you start by looking for a used product, you have the chance to save up front. 

But you can leverage the asset on your balance sheet, using it as security toward any future business loans. 

Although there is a small chance of future value, the reality is that commercial air conditioning is an asset that will depreciate in value. It will have little to no worth at the end of its useful life. If you are making such a purchase in cash, that’s a large chunk of money to take from your savings or reserves. You must think about how that could disrupt your operations.

Buy or Lease: It Comes Down to Depreciation 

In the words of entrepreneur and billionaire John Paul Getty, “If it appreciates, buy it. If it depreciates, lease it.”

Commercial air conditioning is a depreciable asset. It will continue to decline in value every day you own it. In the end, it can’t deliver any financial benefit when sold. For a small business, the conclusion is financing. You may pay more over time but it’s the best for your books. 

Martin Dixon Limited are accredited with the FCA and can organise all financial packages to take work load/stress away from our clients allowing them to carry out their day to day activities within their organisations. We will issue a full breakdown of the monthly repayment, total repayment amount and amount you can offset against taxable income allowing clients to make an informative decision.

We understand how important cash flow is within an organisation and we find finance packages a plus due to an agreed payback amount being agreed which can then be budgeted for throughout the year. Plus, come the end of the term the Air Conditioning System is yours!

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