You might have heard about equipment financing. As we all know, for sustaining a business, equipment is necessary to help a business roll. There is a similar kind of financing that involves leasing instead of buying.
In some types of businesses, buying the equipment can turn out to be costlier. To keep the costs under control, pieces of equipment can be leased instead of buying. Any kind of heavy machinery is available for leasing. In terms of bulk types of equipment, leasing can be a feasible option if you are just starting.
What Is Equipment Leasing?
It is the provision of using machinery or equipment on a rental basis. The firm which offers the lease has the real ownership while the individual having borrowed it has the actual use of the item. Therefore, you can cut down on capital and reduce your cost of investment.
Equipment Leasing has been categorized generally into two types- capital lease and operating lease. A capital lease is a long-term lease aimed at small businesses which use the leased equipment for a long period and may even purchase it. The maintenance of the machinery solely lies on the borrower and paying the insurance as well as taxes are borne by the lessee.
Contrary to it, an operating lease comes with short-term objectives. Businesses can cancel the equipment before the lease period expires and replace it with other equipment. The lessee then bears a penalty. Also, in this case, the ownership and risk are both taken care of by the renter.
Advantages OfEquipment Leasing:-
- Monthly payments for a lease are lower than equipment financing.
- You can get a fixed rate of payment rather than floating interest rates.
- This equipment can be leased without any down payment. This advantage makes it easier for small businesses with zero to low capital, to avail this option.
- The soft costs, including taxes and delivery charges, can be afforded when the lease financing covers 100% of the total cost of items.
- The flexibility provided is paramount as once the lease is over, you can return the equipment or start a new term of the lease once the principal amount has been paid off.
Certain criteria need to be taken care of while considering leasing.
- The duration of the lease.
- The terms of payment made by the borrower.
- Tax considerations
- Cancelation agreement
- Renewal provisions
Where To Lease Equipment?
Equipment Leasing, very much like equipment loans, can be procured through various avenues. There are legit leasing companies. Before zeroing down on any leasing company, be well aware of the company’s market reputation. Banks do offer small businesses leased equipment. The rate of interest is low but you need to pay periodically without fail.
Here, you do not have the problem of providing collateral as you mostly do not aim to buy the equipment. For cash-strapped owners, this is a favorable option. The equipment lease rates and terms vary from company to company. Before equipment leasing, make sure you have a detailed inventory where you understand the monthly expenses, requirements, and needs to maintain the equipment.