How to Choose Between Equipment Loans and Equipment Leasing
Equipment can be extremely expensive. Whether you’re starting up a medical clinic or expanding your construction services, obtaining the equipment you need to operate effectively can be incredibly costly. Two popular options to secure equipment are equipment leasing and equipment loans. Learn which one is right for you and find out how you start your business with all the necessary machinery.
An equipment loan allows you to own the machinery you need. You’ll choose the equipment and term limit and typically make a down payment. After a predetermined amount of payments, you’ll own your equipment outright. In the long run, this is usually a more affordable option than equipment leasing.
However, it is only a valuable option if you can’t buy equipment upfront and plan on using it for more than three years. An equipment loan uses the equipment itself as collateral, so it’s available to many small businesses who may otherwise be unable to secure financing.
Equipment leasing, on the other hand, offers advantages for businesses who need short-term use of machinery or who need to continue to upgrade their machinery. A lease, like a loan, is based on a series of payments. However, at the end of the pay period, you don’t automatically own the equipment. Some leases give you the option to purchase the equipment at a discounted price. Others don’t, and you simply return the equipment to the leaser and start another lease.
An equipment lease is a competitive way to secure highly specialized equipment for short-term projects. If you need a new backhoe for your construction company, but only for a two-year contract, you’ll typically save money by choosing a lease. Another popular option is for computer technology, which quickly loses its value and becomes obsolete. Lease the equipment for a few years then begin leasing the upgraded model. This can save you money versus buying expensive equipment and selling it for a reduced price.
There are many different rates and terms for both leases and loans, depending on the financial institution you choose. Determine whether you wish to own your equipment outright or simply use it for a short time. Whether you choose equipment leasing or equipment loans, ask about all the rates and terms available before you make your decision. Start your business on the right foot with affordable alternatives to purchasing expensive equipment. Keep your working capital flexible as you grow your business.