When you own a business that requires any kind of equipment, you probably know how much it sucks when something breaks down. The dread sits in as you suddenly realize you’ll need to spend thousands on a new piece of equipment which might mean you need a loan and the capital to guarantee it. On the other hand, instead of buying new equipment you could simply lease a new one.
Practical Advice: “ Financing works best for equipment that has a long life or a good resale value. Small businesses with less cash flow may want to prioritize leasing since there’s no collateral or down payment required ”
The Difference Between Equipment Leasing and Equipment Financing
When you finance equipment, you’re taking out a loan that you’ll pay back over months or years. Equipment leasing involves making monthly payments to a lender who holds the title to the equipment, but you’ll be the one using it.
The major difference between leasing and financing equipment is ownership. At the end of your financing terms, you’ll own the piece of equipment you’ve been paying on. With equipment leasing, on the other hand, you’re paying to use the equipment on a monthly or yearly basis. If you no longer need the equipment, you can return it and cease making payments.
Additionally, leasing equipment can be a more affordable option for smaller businesses, since they can be for shorter periods of time. Equipment financing can be costly and comes with high interest rates for those with less than stellar credit. Plus, if you’re financing costly equipment, you may be on the hook for payment for years.
What is Equipment Financing and How Does it Work?
Equipment financing allows you to take out a loan or line of credit in order to purchase equipment that is necessary for your business to operate. Since equipment can be a costly purchase, most businesses don’t have the cash to pay upfront. Equipment financing lessens the burden.
The actual financing will work like any other personal or business financing in that you’ll make monthly payments to whichever lender you decide to work with, plus you’ll pay interest over the life of the loan. Some lenders will also require a down payment or collateral if you don’t have good credit or take out a huge loan.
What is Equipment Leasing and How Does it Work?
Leasing equipment involves renting a piece of equipment for a set amount of time from a lender. Instead of paying a monthly payment to eventually own the equipment, you’re making a payment in order to continue leasing the equipment. You’ll still pay interest on the lease since that’s how the lender will make their money.
Leases are ideal for those looking to switch out equipment frequently or work in an industry with quickly changing technology. These leases typically don’t require a down payment or collateral, making them a good option for those who want to keep their business’s cash flow completely open for other endeavors.
Equipment Leasing Pros and Cons
Frequently Asked Questions(FAQ)
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