Every business needs equipment to successfully run. From computers to machinery, the cost of specialized equipment makes it difficult to pay for everything through capital. This leads many business owners to consider acquiring equipment through a lease or financing agreement. Leasing and financing both have their own advantages and disadvantages, but ultimately each option will allow you to obtain necessary equipment without draining your business’s capital funds.
Leasing vs. financing
Leasing and financing equipment both have their benefits. With leasing you do not own the equipment, it is more akin to renting the items you need. A lease arrangement typically requires little to no money down and no additional collateral.
When the lease ends you can often purchase the equipment for market value, return it, or continue your lease. While you never actually accrue any equity in the items you have leased, the lack of down payment can be appealing for businesses with less cash flow.
Financing is structured in the same way as a loan. An institution will lend your business the money to purchase the equipment you need. You'll pay the principal balance of the loan along with any interest and fees accrued according to a payment schedule over a period of months or years. This payment structure allows your business to build equity in the equipment over the life of the loan and when the loan is repaid, the equipment is wholly owned by the business. While financing requires a down payment and/or collateral, once the loan is paid off - your business will own the equipment you financed.
What is right for my business?
Determining whether equipment financing or leasing is best for your business requires a careful look at your finances and needs. If a down payment is cost prohibitive, a lease could be the best option. If a monthly payment leading toward outright ownership is appealing and providing a down payment isn’t a problem, financing might be the best option.
Another aspect to consider when deciding to lease or finance equipment is the industry in which your business operates. Is having cutting edge equipment a key to success in your industry? If so, equipment leasing will allow for upgrades every time your lease term is up. This is great for a cyber security business, where computers are constantly improving. A restaurant may not need the newest equipment every few years and may instead prefer to finance the cooking equipment required to operate. This will allow the restaurant to avoid having a payment in the future once their equipment loan has been paid off.
These are just a few of the elements to consider when deciding between equipment financing or leasing options. Not sure what is best for your business? Contact us or learn more about our business offerings today!