As all of us in the business world know, equipment is essential. Sometimes this equipment gets old and wears out, or becomes outdated by newer technology. Unfortunately, equipment can be expensive, and companies may not always have enough capital on hand to purchase or lease it outright. In these cases, equipment leasing can be a useful solution. It can help you acquire new equipment, which can enable businesses to run their day-to-day activities or open up new frontiers when it comes to taking things to the next level. An equipment lease has several different benefits which we’ll discuss later in more detail.
What is Equipment Leasing
Equipment leasing is similar to an equipment loan in that you receive financing for a piece of equipment for your business. You can think of it as renting the equipment from a vendor or business leaser. With equipment leasing, you make monthly payments for the ability to use the equipment for a limited amount of time, instead of purchasing it or making loan payments on it. This set amount of time makes leasing a more cost-effective option for equipment that you only need to borrow temporarily.
So, you’ve made your payments, used the equipment, and now you’re at the end of your leasing term. What happens now? There are three options that lenders provide:
- Terminate the lease and walk away
- Renew the lease and continue using the equipment
· Purchase the equipment for its market price and it’s yours
Benefits of Equipment Leasing
As we discussed earlier, equipment leasing can be a smart method of financing your business’s equipment when you can’t afford to purchase upfront or make loan payments. It’s especially appropriate if you don’t need to use the equipment for a very long time. That being said, there are even more advantages and benefits to an equipment lease that make it stand out in the gamut of business funding options.
Low Monthly Costs
An equipment lease allows you to rent a piece of equipment that you can't afford to buy right on the spot. Often, lenders won’t require any upfront payments, and the monthly rate is usually lower than what you would see compared to other financing options like a business line of credit or loan.
As we mentioned earlier, if you're in a field with evolving equipment or equipment that has a short lifespan, then an equipment loan is probably not the best option. It would be wiser to go with a shorter-term commitment like an equipment lease. That way, you’re not tethered to something that you would need to replace soon after a loan payment or upfront purchase.
Depending on the lender’s terms, you may be able to return a dated piece of equipment at the end of your term and start another lease on a newer piece of equipment. This would be instead of just buying the equipment at the end of your lease term.
Sometimes, accidents happen or things break down. Fortunately, with an equipment lease, the leasing company will almost always take care of any repairs on the piece of equipment.
As a business owner, you probably want access to as much working capital as possible. With a lease, you won’t need to be making large cash payments. This is convenient for business owners to save and allocate money to other expenses.
Simple Application Process
Another great feature of equipment leasing is the application process. You likely won’t need to provide as much financial paperwork as you would if you applied for a traditional loan. Also, equipment financing has options for those with less-than-stellar credit.
The Bottom Line
It’s been established that an equipment lease is a great way to get your business the equipment it needs. It has some similarities and some dissimilarities from an equipment loan, something we’ve covered in another article. What is also attractive about this funding method is its various benefits, the majority of which center around affordability and time frame.