Financing equipment.

[Northwind]

We are looking to purchase a sewing machine ($3000) in the very near future. The company we are buying from offers financing through a lease-to-own (LTO) company. The finance company is telling me that the LTO option is better for tax purposes. However the interest amount is a set amount regardless of how quickly we pay off the loan.
Would there be a benifit to the LTO option or should we seek traditional financing through our bank with the option to pay the note off quicker?

Some numbers for example. 

LTO- 4 years. $89/ month. Total payback amount $4272 Interest total $1322 (these amounts must be paid regardless of how quickly the note is paid off)

Traditional loan- 4 years @ 11% interest rate. $76.24/ month. $3659.73 total loan amount. $709.73 interest @ full term. No penalty for early payoff.

[Big Sioux Saddlery]

To me this is a no-brainer. $1322 in interest or $709. . . take the extra $600 and go buy more tools.  I hate, HATE paying interest, although I've paid my share. As far as the LTO being better for tax purposes, if you're borrowing $3000 to buy a machine, you probably aren't going to need the write-off.  It may be true that sometimes, leasing is more advantageous than buying, but in this case, they're just trying to sell you on the loan.  JMO, some CPA or tax advisor will probably come and explain exactly why it's better to take the lease option.

[JLSleather]

I try to never "finance' anything.  Which I suppose is why I don't own much, but don't owe anything, either.  

Though the wife doesn't suffer from that  

 

 

[nrk]

10 hours ago, Northwind said:

We are looking to purchase a sewing machine ($3000) in the very near future. The company we are buying from offers financing through a lease-to-own (LTO) company. The finance company is telling me that the LTO option is better for tax purposes. However the interest amount is a set amount regardless of how quickly we pay off the loan.
Would there be a benifit to the LTO option or should we seek traditional financing through our bank with the option to pay the note off quicker?

Some numbers for example. 

LTO- 4 years. $89/ month. Total payback amount $4272 Interest total $1322 (these amounts must be paid regardless of how quickly the note is paid off)

Traditional loan- 4 years @ 11% interest rate. $76.24/ month. $3659.73 total loan amount. $709.73 interest @ full term. No penalty for early payoff.

use it, if don't have enough budget
don't use, if have enough money to get it at once


 

[Northwind]

6 hours ago, Big Sioux Saddlery said:

To me this is a no-brainer. $1322 in interest or $709. . . take the extra $600 and go buy more tools.  I hate, HATE paying interest, although I've paid my share. As far as the LTO being better for tax purposes, if you're borrowing $3000 to buy a machine, you probably aren't going to need the write-off.  It may be true that sometimes, leasing is more advantageous than buying, but in this case, they're just trying to sell you on the loan.  JMO, some CPA or tax advisor will probably come and explain exactly why it's better to take the lease option.

I'm thinking along those same lines. We just aren't big enough for the write off to matter. 

I'd love to pay cash, it just builds so slowly. The machine will help with that. I spent 48 hours in the saddle of the stitching horse making our last pair of chaps. It really, really ate into the profit margin.  With two more pair on order it, in theory, should pay off quickly. That is if I can get over the learning curve quick enough. 

 

Thanks for the advice all. I appreciate it. 

Leather is easy, the business is hard. 

[Big Sioux Saddlery]

19 hours ago, Northwind said:

I'm thinking along those same lines. We just aren't big enough for the write off to matter. 

I'd love to pay cash, it just builds so slowly. The machine will help with that. I spent 48 hours in the saddle of the stitching horse making our last pair of chaps. It really, really ate into the profit margin.  With two more pair on order it, in theory, should pay off quickly. That is if I can get over the learning curve quick enough. 

 

Thanks for the advice all. I appreciate it. 

Leather is easy, the business is hard. 

Definitely true! There are many great craftsmen that are not great businessmen.  If you have to borrow the money, go through your bank. It will nearly always be a better deal than going through the company that is selling you the machine (or car or tractor or whatever).

[bikermutt07]

As the former owner of 2 failed businesses I would like to throw this out there.

Everyone considering starting a business should read

"E squared Revisited"

It seemed like someone had been following me around reading my mind and then wrote the book.

It clarifies the difference between being a great technician who only wants to do the work the most precise way, a manager who is trying frantically to keep schedules and orders, and the entrepreneur who just wants to drag everyone forward to a success in the fastest manner possible.

I know this is a little off topic but it's great information. The book explained how you are going to become all three of these characters fighting one another until nothing is fun anymore.

Most people think "if I work for myself, I can make more money and not have to work as much".

This book explains away this myth really really well. 

Anyway, just thought I'd throw that out there. I came to the conclusion that I am no business man. I do what I do well. But I will do it for a business man. 

[JLSleather]

Seriously, the little girl who makes sure the coffee is fresh at the convenience store makes about $500 / week. Since she has little to do other than that, she stays busy doing her nails and thinking of new ways to get a larger tax refund.  

One day, I'll just go get a job so I can relax

[MADMAX22]

5 hours ago, bikermutt07 said:

Most people think "if I work for myself, I can make more money and not have to work as much".

I thought it was the other way around, most people thought they would make less money, work harder, but not have to deal with a bunch of money hungry greedy A-holes telling them to cut corners and screw people over to get more money. 

[MADMAX22]

On 1/23/2017 at 9:20 PM, Northwind said:

LTO- 4 years. $89/ month. Total payback amount $4272 Interest total $1322 (these amounts must be paid regardless of how quickly the note is paid off)

Traditional loan- 4 years @ 11% interest rate. $76.24/ month. $3659.73 total loan amount. $709.73 interest @ full term. No penalty for early payoff.

Traditional loan. No way in hell would I ever get a loan that charged me the full interest regardless of when I paid it off. Who ever is dong the LTO is acting like a used car sales financier. They are setting it up so regardless how you do it they get the bonus check if you do pay it off OR they get the machine back and however much money you have "leased" it for. No thanks.