Equipment leasing and financing are two popular ways to acquire equipment. However, business owners usually have a hard time deciding which one to settle for.
Leasing is good for businesses with limited capital or who need equipment that can be frequently upgraded, while purchasing is a better option for established businesses or equipment that has a long life.
To lease or to buy will depend on your business situation. Before you make a decision, consider the type of equipment you want to acquire, how frequently the equipment will be used, its maintenance costs, and its resale value.
With the above considerations in mind, and having differentiated between leasing and financing, you can select the right way to acquire equipment for your business.
What is Equipment Leasing?
Equipment leasing is a long-term renting agreement. A lender purchases equipment and rents it to a business for a period. The business will pay the lender a monthly fee during the rental agreement period, also known as a lease.
During this lease period, the business will use the equipment but they don't own it. The equipment is returned to the lender once the lease ends but the business has an option to renew the lease.
- Leasing allows you to bring in up-to-date equipment and hire even more updated ones when your lease is over.
- Leasing allows you to acquire equipment with minimal expenditure because it rarely requires a down payment.
- Leasing is tax-deductible as a business expense on your tax return, therefore reducing your lease's net cost.
- Leases have more flexible terms than loans, which is an advantage if you need to negotiate a longer payment plan
- It takes less time to prepare a lease contract than it does with a loan.
- The overall cost of leasing is higher than purchasing.
- New businesses under two years don't have easy access to leases even with a strong credit history.
- You don't own the equipment and therefore you might be limited on the equipment's usage
- If you stop using the equipment before the lease is over, you will pay a penalty fee.
What Is Equipment Financing?
Equipment financing or loaning refers to borrowing money for the purpose of acquiring equipment. The financing firm lends all or most of the money required to purchase the equipment.
The company receiving equipment pays a portion of the purchase each month. Interest and other fees are included according to the loan terms until the full purchase amount is paid. At this point, the company gains ownership of the equipment.
- Equipment financing is easy to obtain because it has collateral built into it, which is less risky for the lender, thus easy for you to be approved.
- The long term cost of a loan is lower than that of a lease.
- The down payment required (around 20%) is high and may not be possible for some businesses.
- You may be stuck with outdated equipment and be forced to make another purchase.
If you are still unsure whether to lease or buy equipment, a lease vs. buy calculator may help you out.
The Lowdown on Leasing
Leasing gives you financial flexibility because you don't spend a huge chunk on down payments and the monthly payments are lower than you would pay with a loan.
You will also get tax deductions if you opt to lease equipment. To top it all off, you will not be stuck with outdated equipment but will get access to updated business tools.
No matter which field you are in, Wilmar will provide leased equipment and help you consolidate your business needs. Call us to discuss your business needs.