Unless your business equipment is brand new, you’ve likely thought about upgrading it, possibly via a loan. In the long run, new systems can make your business operate more smoothly and cost effectively. However, in the short term, equipment upgrades can be cost-prohibitive and require a loan.

Put simply, you don’t want to scrap your current infrastructure if it’s still within its useful lifespan. But, if you wait too long to upgrade, your business could lag behind your competitors’ offerings. Striking a balance is crucial.

Should your business make equipment upgrades?

Consider these questions:

Is your old equipment hurting business productivity?

If your systems are so antiquated that they struggle to perform tasks that are now expected in your industry, you could be losing revenue and customers. “Understand the useful life of your equipment and plan ahead in terms of your capital expenditures to make sure that, as equipment becomes obsolete or outdated, you’re anticipating replacements or upgrades,” says Anita Colvin, Vice President, Director of Sales — Business Banking Equipment Finance at U.S. Bank.

Is your equipment prone to breakdowns or a struggle to repair?

If your system is obsolete and unsupported by the manufacturer or you’re finding it increasingly difficult to locate replacement parts, you can only delay replacing it for so long. It’s better to proactively upgrade before your equipment fails you completely. “A lot of lenders offer the opportunity to seek a pre-approval and, in some cases, to even keep an open-ended equipment line available,” Colvin says. “Have plans in place to understand what route you would take if you needed to make a quick financing decision.”

Is one piece of equipment preventing upgrades in other areas?

If you’d like to implement a new administrative management system, you can’t do that until you upgrade and expand your server array. One upgrade can have a domino effect. If you’re in need of multiple, coordinated overhauls, it’s often best to do them all at once.

Is your business image suffering?

Customers expect a threshold level of products and services. If your equipment can’t provide it, you’ll be seen as outdated and unprofessional. That, in turn, hurts your reputation, which can be difficult to repair. “Every business has some sort of equipment needs,” Colvin says. “Oftentimes when we think of equipment, we think of it in the traditional sense — big pieces of machinery. Equipment is essentially any revenue-generating business asset that supports that business daily. Examples include commercial vehicles, phone systems, computer software, office furniture, etc.” Look closely at your business model and consider what affects your image, and where there might be room for improvements or upgrades.

What are the costs of equipment upgrades?

Be sure to examine a possible upgrade from all angles to determine if any interdependencies in your systems could be affected by a change. Create detailed projections on cost savings or revenue gains against the replacement cost and the expense of servicing and maintaining the new equipment. “Look at not only the true cost of the equipment but the all-in cost of getting it up and running, including things like installation or training,” Colvin advises. “Spend some time doing the analytics, too.”

Does the timing seem right?

Pay attention to economic inducements. Lowered interest rates, a new financing program or a change in a relevant tax deduction might influence your choice about whether to take action now or to delay. “Your CPA or tax adviser [can help you] understand whether or not you’ve fully depreciated your equipment, and the tax advantages of purchasing, especially at year end,” Colvin says.

Next step: Financing your equipment upgrade

Unless you have substantial capital reserves, your upgrade will likely require a loan. Here’s what you can do to prepare:

Seek training

Consider taking a few of the free, self-paced online training courses offered by the Small Business Administration (SBA). Topics include financing options, how to prepare an SBA loan package and more.

Consult the professionals

Talk to your accountant and attorney about the potential tax advantages and liabilities of purchasing, leasing or financing your upgrade. Work with your banker to determine the best type of loan for your needs and the loan terms that fit your situation. “[U.S. Bank] has options tailored to the needs of the business,” Colvin says.

Present your equipment loan package

Prepare your package, rehearse your presentation and then make your case. You might want to give a tour of your business to illustrate your plans. Stay in regular contact with your banker while the loan package is under consideration, as you might be asked for additional documentation.

Deciding to upgrade your equipment can be an intimidating, time-consuming process, especially if it requires an equipment loan. Whatever your business needs are, U.S. Bank is available as a resource. “We can accommodate traditional lending, and then some of those custom-lending options as well,” Colvin adds. Work with an adviser and educate yourself about the options to help ensure you make the right upgrade choice at the right time.

For more information, talk to a business banker at U.S. Bank who can help you sharpen your cash management skills, or visit usbank.com/business.

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Editor’s note: This article was written by our partners at U.S. Bank.

Credit products are offered by U.S. Bank National Association and subject to normal credit approvals and program guidelines. Some restrictions and fees may apply. See a banker for details. Equal housing lender.

Deposit products offered by U.S. Bank National Association. Member FDIC.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

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