Getting the equipment you need for your company, repairing it or even getting a more efficient model, is not an easy or cheap task. Not only do you need to research available makes and models to find the best fit for your business, but you also must afford the units themselves. Equipment financing and leasing are good options for getting the units you need without straining your working capital or cash flow. Choosing between the two, however, can require a bit of comparison between each one’s pros and cons and your company’s needs.
Companies which want to own their units immediately and permanently will usually go with equipment financing and use the items purchased as collateral on the loan. Once you secure the loan and make the down payment on the equipment, you have the burden of ownership, so it is a good idea to use this option for core items critical to the function of your company. For instance, a landscaping company purchasing a tractor with lawn cutting, aerating and snow plowing attachments can use a loan to buy and modify the equipment immediately and pay it back with profits earned by putting the tractor to work. Since these types of loans are secured by using the equipment as collateral, they are simpler to attain and easier on the credit check than more traditional bank loans.
Leasing equipment is an option open to more industries than most business owners expect and is good to use when the items in question quickly become obsolete such as electronics, or when they are only needed for a term shorter than thirty-six months. This is especially useful if you do not have the space to store seasonal equipment when not in use or if you are in the medical industry where expensive equipment is outdated on a yearly basis. Since you do not have ownership of the equipment, you can sometimes bundle the transportation, maintenance and management of the units with the lease, so your lender is responsible for those items. You may even be able to upgrade during or after the lease term if a newer model becomes available. A lease uses the equipment as collateral and allows for a hundred percent financing with no down payment.
When you cannot afford to buy needed items with your working capital and cash flow alone, equipment financing and leases are good options to look into. For more permanent items, having ownership by taking out an equipment loan can provide you with more benefits; but frequently updated or temporarily used machinery leased instead of purchased can offer you more flexibility.