Is It Better To Lease Or Finance Business Equipment?
Depending on the size of your business, many tools are considered your equipment. Whether it’s computers, office furniture and fixtures, kitchen appliances, HVAC units, or company cars, you may need to look at upgrading these from time to time in order for your business to operate successfully. In this article, we will take a look at which is better between leasing and financing when it comes to equipment for your business and how you can get either, depending on your preference.
Let’s Talk Leasing
So what is leasing, and why is it a thing?
Leasing means that you hire the equipment you need to help your business function for a certain period of time. The idea is that you get the equipment you need and pay a certain fee a month in order to lease (or rent) them, and when the term finishes, you have the option to either renew your lease, purchase the equipment, or return it. The nice thing about leasing is that if you believe or know that the equipment you need will have upgraded versions in a few years’ time, then you can just lease them as opposed to buying them and then having to replace them again. Leasing periods are usually between 2 and 7 years, and they never exceed or outlast the actual equipment value. Other leasing advantages include:
- No need for down payments
- Easy applications process
- Repairs are not your responsibility
Leasing is often a simpler way to keep your business running without having to worry about upgrading your equipment for a certain period of time. However, you do not get to own any of it, and if you are looking at buying something on a more permanent basis, then financing may be the thing for you.
Financing, A Business Favourite
While leasing is a long-standing idea, most businesses prefer buying their equipment for keeps. If you are such a business, then you can look into financing for your business. Usually called business equipment financing or ‘loans’, your financial services provider can loan you all, or most, of the total value of your equipment. With equipment finance, you will have a payment plan for repaying the amount you were loaned with interest, and once that’s done, you officially own your equipment.
One of the main advantages or pros of financing is that, as a business, it is easy to qualify. The majority of equipment lenders are willing to take into account business owners with poor credit. Due to the fact that equipment loans are self-collateralised, if a borrower falls behind on their payments, the lender may seize and sell the financed equipment in order to recoup their lost funds.
Let’s Take A Look At Some Cons
Both leasing and financing have their benefits as well as their cons. Here’s a quick look at each to help you gauge which one will suit you best.
Leasing: The cost of an equipment lease is its main drawback. You won’t pay interest on your monthly payments because a lease isn’t a loan. Nevertheless, lenders that offer equipment leasing will include an effective interest rate in those flat monthly payments; this is how the lender profits from the transactions.
Financing: With financing, you may need to secure a down payment, and if you are a small start-up, this may be difficult due to many reasons. The good news is that you have a better chance of obtaining a loan with a lower interest rate if you can contribute a larger down payment.
With financing, you are also stuck with the equipment forever and depending on your needs, this may be a good or bad thing.
Your business needs to operate on a scale that will not only offer your customers the best but offer you peace of mind too. Go for the option that will be manageable on your business’s wallet as well as your own preference. Remember to consult your financial services provider and ask as many questions as you possibly can in order to understand what’s best for you. If your financial services provider is not willing to give you the answer, then the answer is to keep looking for one who can. Good luck with your business growth.