An equipment lease or financing deal can be an excellent choice to equip your business with the tools you need, especially if you aren’t ready to take on the full financial responsibility that comes with owning the equipment outright. However, there are important differences between these two lease or finance options, and it’s important to understand those differences before making your decision.
7 Benefits of Leasing
Equipment leasing is one of the best options available to small businesses because it provides many benefits. According to a study by Cushman & Wakefield, 76 percent of companies lease equipment because it is a way to purchase products that they would otherwise not be able to afford. Since equipment leasing costs less than other forms of financing, such as loans and bank financing, companies are often able to make better use of their funds in other areas. Additionally, renting can provide significant tax benefits, including depreciation and cash deductions from operating expenses.
In addition to being an effective method of acquiring new equipment without tying up company capital, equipment leasing also has several key advantages over other types of equipment financing:
1) As mentioned above, taxes are typically lower on leased equipment since it’s viewed as an operational expense rather than a capital expenditure.
2) In some cases, there may be lower down payments required on leased equipment compared with financed purchases.
3) There is flexibility with leases when you want to upgrade your equipment – you can trade-in your old product for new one with no penalties or prepayment penalties if you choose.
4) Equipment leases typically have shorter terms (up to five years), so businesses don’t have to worry about long-term commitments.
5) Equipment leases tend to have low monthly payments; which makes them ideal for smaller businesses that don’t want to take on large debts.
6) Companies can always sell their equipment at any time; if your business is doing well and you need more equipment, you could consider buying out your lease early.
7) Leases allow you to leverage today’s technology – new equipment will likely come out within five years of signing a lease agreement.
7 Benefits of Financing
There are many pros and cons to both leasing and financing; with so much information out there about how to go about each option, it can be hard to know which is best for your business. For many small businesses, equipment financing is a perfect fit because of its relative ease of use and flexible terms that can help you expand your business quickly when you need something specific right away. It’s important to weigh all factors carefully before making a decision, however; while leasing may be an attractive option at first glance, that low initial monthly cost might not be as low as it seems in reality once everything is said and done.
Here are seven additional benefits of equipment financing:
1) Tax Deduction – equipment financing allows you to deduct 100% of your loan payment.
2) No Personal Liability – even if your business goes under, you’re not personally liable for any payments that come due after it’s dissolved; they go back to your lender instead.
3) Equipment Covered Under Warranty – some companies offer free warranties on new equipment when you purchase through them; with a lease, you’ll be responsible for paying these costs upfront out of pocket but can still deduct them from your taxes when it comes time to file paperwork with Uncle Sam in April.
4) Equipment is Considered an Asset – equipment is an asset and therefore depreciates over time; rather than having to pay tax on its full value up front, you only have to pay tax on what you’ve paid toward depreciation each year.
5) Flexibility in Equipment Selection – leasing allows you more flexibility in choosing what type of equipment best suits your needs at a given moment while also allowing you more freedom as far as upgrades and changes are concerned down the road.
6) Lower Upfront Costs – equipment leasing often has lower upfront costs because monthly payments tend to be lower than those associated with buying equipment outright.
7) Get Equipment Quickly – equipment financing allows you to get equipment quickly without having to wait around for approval from banks or other lenders; many businesses choose a lease because they need something right away that doesn’t fit into their existing budget.
Applying For an Equipment Loan
Unless you are a business that needs to buy expensive machinery, equipment finance will probably be your best option. While it can sometimes take several weeks to get approved, applying online makes it easier to handle than applying in person at a bank. It also allows you more freedom when deciding what kind of equipment you need and what size loan you should apply for. At most places, you can apply with little more than your contact information and a rough idea of how much money you will need. Since equipment is often rented on a monthly basis, there are no long-term contracts or set repayment dates; instead, payback terms are based on your business’s income. There is little paperwork involved in signing up—often just some basic financial questions to ensure that leasing is suitable.
Applying For an Equipment Lease
The process of applying for an equipment lease is fairly simple, especially if you already have a line of credit in place. After determining your desired type of business-specific equipment and after receiving quotes from multiple vendors, contact a leasing company that specializes in providing equipment leasing services to small businesses. You can find such companies on your own by searching online or by asking a trusted financial institution for assistance. Once you’ve identified several potential leasing companies, send them each an RFP (Request For Proposal) that contains specific details about your desired lease agreement (credit lines, length of lease term, monthly payments). Then review each response and determine which fits best with your business objectives.
Your Partner, United Funding Group
At United Funding Group, we are your partner. We help small businesses in matching them with funding for leasing or financing. Whether you need to lease equipment or invest in capital assets, our experts will work diligently to find you a lender that is able to meet your needs while providing competitive rates and terms.
If you’re ready to get started, contact us today at 1-954-287-4539. One of our representatives will be happy to answer any questions you may have regarding available funding options.