Equipment Leasing vs. Equipment Financing
Table of Contents
The equipment leasing vs. equipment financing debate can be confusing when trying to determine which option is best for your business or project, but it doesn’t have to be! We will break down the pros and cons of each so you can make an informed decision on what’s right for you.
– equipment leasing: monthly payments that are typically cheaper than equipment financing
– equipment financing: cash upfront with an extended payment plan over time, which typically means more expensive payments.
Equipment Leasing Pros and Cons
A company may be hesitant to purchase expensive equipment outright, but the costs are too much for cash flow. Equipment leasing allows a company with no capital expenditure upfront and low monthly payments on long-term agreements that can range from five years or more (depending on how well it manages its assets). However, there is an ongoing cost every month of renting out these items at rates often 30% higher than if they were purchased in full.
It also makes sense when purchasing less durable goods like construction tools where you might need them only once per year or so—renting saves money until necessary next time around. The key consideration: How many times will this tool/vehicle be used? After all, any time spent not using something counts as lost
Equipment Leasing Pros
No Down Payment or Collateral
One of the best features of equipment leasing is that you don’t need to provide a down payment. You also won’t have to pay for collateral, which can be an expensive process if not handled correctly.
Repairs are the Lessor’s Responsibility
While the equipment is being used by you, repairs are your responsibility. But when it becomes time to return the equipment at lease end, make sure all necessary repairs have been made before taking possession of another unit!
It’s easy for people in a rush or unaware to neglect this important detail after returning their leased equipment and not be aware that they now owe money until months later – often incurring late fees as well. Returning rented items without making any needed fixes can also result in extended use damages on other units which could lead to additional financial burdens down the road!
Flexible Equipment Leasing Terms
Equipment leasing offers a flexible selection of terms that work for any type of project and most lease agreements include several options after the lease ends.
- Purchase the piece of equipment. If you choose to buy the equipment you’ve been renting, the lender releases the title to the equipment to you
- Continue to lease the same piece of equipment
- Return the equipment
- Trade-in your current equipment for a new or updated piece of equipment (and start a new lease for the new equipment)
Equipment Leasing Cons
The cons of equipment leasing are that you might lose your company’s entire investment if the item is lost, stolen, or destroyed. Another con may be that when something goes wrong with a piece of leased equipment and it needs maintenance; some companies do not cover these situations in their contract.
Equipment Finance Pros and Cons
Equipment financing companies are mainly concerned with the condition and resale value of any equipment they’re lending to a candidate. If you want an affordable rate, then it is important that your machine looks new or can be sold easily in case things don’t work out for whatever reason. The better the product’s quality (condition) and the higher its potential resale price; the more money lenders will loan you.
Equipment Finance Pros
No Collateral Needed
Since equipment loans are self-secure, your equipment financing company probably won’t ask you to offer up any additional collateral to secure your equipment.
The financial burden of equipment loans can be far less than the cost to lease. Interest rates on an equipment loan are usually lower, and you won’t have as many expenses associated with a long-term leasing agreement like insurance payments and maintenance costs.
Equipment Financing Cons
Down Payment Might be Required
The Cons of Equipment Financing is that a down payment may be required, and monthly payments might not always work in your budget.
Equipment Becomes Obsolete
Before you apply for a loan to buy a piece of equipment, be sure that it’ll retain its value by the end of your loan. Otherwise, you may find yourself tied to outdated tools and have some payoff potentials in order not to purchase new ones.
Equipment Leasing vs. Equipment Financing
Equipment leasing and equipment financing are both viable options for your business. A lot of small businesses are finding themselves with a tough decision. Equipment leasing or financing? It’s not an easy choice, but If you’re considering which option to pursue, it is important that you take the time to do research into each one before making a decision. The most important thing is choosing what will work best for your company over the long term. Which of these two types of finance have you pursued? Do they offer any benefits that can benefit your company in the future?