Most small businesses run into the problem of needing to buy new equipment, but not having enough cash on hand to buy it outright. Some turn to small business loans, but there are other options. Two popular funding paths are equipment leasing and equipment financing. Both are good options for getting the equipment you need, but depending on the situation, one may be better than the other.
Let’s look at each.
Equipment Leasing
How it Works
Equipment leasing is similar to vehicle leasing. Typically, there is no requirement to put down money on the lease or to put up collateral. Your only cost will be the monthly payment of the lease. At the end of the lease period, you will likely have the option to renew the lease, terminate the equipment lease or to purchase the equipment outright.
Advantages and Disadvantages
The advantage of an equipment lease is the low cost of entry. You don’t have to scramble to find cash to purchase equipment and you won’t be tying up precious working capital. The biggest disadvantage to using an equipment lease to purchase is, in the end, it may be more expensive than purchasing the equipment outright because of interest payments.
When to Use Equipment Leasing
Equipment leasing is a good option for equipment with a high turnover rate. Technology-driven equipment that is rapidly changing, for instance, may be a good candidate for equipment leasing versus financing. At the end of the lease, you can then get up-to-date equipment.
Equipment Financing
How it Works
Equipment financing is essentially a business loan for equipment purchases, and can be easier to qualify for than a traditional small business loan. Generally, the equipment you are purchasing is used as collateral for the loan and you pay an interest rate, usually fixed. At the end of the loan you will own the equipment outright.
Advantages and Disadvantages
Equipment financing is generally easy to qualify for because the equipment itself is collateral. In addition, there is a substantial small business tax deduction for equipment financing. Just be sure that what your financing will still have value to you at the end of the loan term, because you will own it.
When to Use Equipment Financing
Equipment financing is usually a good option for equipment that does not need frequent updating or that you plan to own for the long-term.
Which Option is Right for You?
The most important thing to consider is the type of equipment you are looking to bring into your business. If the equipment is part of a long-term plan, you’ll probably want to go with equipment financing through a loan. But, for short-term item like computers, you will probably be better of with equipment leasing.
ViewRidge Funding can help you understand which option is best for your business. Give us a call at (888) 241-7241 or fill out our Get Started form today.