How Can You Decide If Leasing or Purchasing Is Better for Your Business?
Equipment financing is the name for loans that let you buy equipment. This type of loan uses the equipment you’re looking at purchasing as collateral, so the other requirements are generally comfortable. Even small businesses can get approved.
Another option for getting equipment for your business is leasing. With a lease, you make a monthly payment to use the equipment. Sometimes, there is a buyout provision at the end of the lease agreement, but many business owners simply use leasing as a kind of rental.
Is it better to lease or purchase equipment for your business? Despite what you may have heard, the answer isn’t always black and white. The right choice depends on a number of factors, including your time in business, your company’s monthly cash flow, the plans you have and the type of equipment you’re looking for.
The Advantages of Equipment Financing
An equipment loan is a valuable route to buying high-value equipment that benefits your business. Depending on the industry you’re in, the right piece of equipment may make a world of difference for your revenue, business reputation and overall capabilities.
For example, there are jobs a construction company simply can’t do unless it has certain heavy machinery. Leveling a parking lot is practically impossible without a bulldozer or loader. Even when not specifically required, equipment can also speed up your work and help you distribute your team more intelligently.
Any time you have equipment that is going to last for 10, 15, 20 years or more, you should seriously consider equipment financing. The exceptional interest rates can save you tons of money compared to leasing long-term.
The Benefits of Leasing
Even though loans are an attractive way to obtain equipment, they’re not always feasible. For one thing, you may need a sizeable down payment. Putting down 15% on heavy machinery worth $200,000 is a lot of money for a small business.
Leasing equipment may not have any down payments at all. Also, even though the overall interest rate is higher, the fact that you’re not buying usually provides lower monthly payments. If your business doesn’t have a lot of working capital available every month, this difference can make life much easier for you.
Another reason to lease is so you can upgrade every time the lease period ends. For technology and other equipment that becomes obsolete relatively quickly, going with a lease can help you stay on top.