Obtaining business equipment can be one of the largest expenses for entrepreneurs, whether they have just opened their doors or been in business for a long time. When you can’t afford to buy computers, vehicles, or other large-ticket items you need right away, your only other options are equipment leasing or equipment financing. We explore the differences between the two below.
What Is Equipment Leasing?
This form of business financing is similar to renting an apartment. Typically, companies offering equipment leasing don’t require a down payment or collateral before loaning you the equipment. Your only responsibility is to pay the monthly or quarterly cost of the rental. However, you must remain current on your payment obligations through the end of the contract. When the contract expires, you can choose to buy the equipment outright at fair market value, terminate the lease, or renew the lease.
One downside to leasing for a long period is that it can end up costing you more than it would have to purchase the equipment at the start. The benefit is that leasing business equipment allows your company to compete with larger, more established businesses without having to wait until you have the funds necessary for a purchase.
What Is Equipment Financing?
Equipment financing may be the better choice if you need access to something that you won’t need to replace as often. Financing means that you apply for a loan to receive the funds to buy the piece of equipment outright. Many lenders allow borrowers to use the piece of equipment they would like to finance as collateral for the loan. That’s good news if you don’t have anything else of value to offer as collateral.
Lenders typically set a fixed interest rate with equipment financing. That makes it easier to budget for your monthly payment. Keep in mind that you must pay the loan in full even if the piece of equipment becomes obsolete before your loan expires.
Need more input on whether equipment leasing or equipment financing is the right option for you? Schedule an appointment with Monstera Lending Group today.