An Entrepreneur’s Guide to Equipment Finance vs Equipment Lease Pt 1
Two terms that are often used in the business field are equipment finance and equipment lease. Some people may often interchange both these terms or may get confused when it comes to choosing the right option. Note that equipment financing will be ideal for boosting up the cash flow as well as the working capital of your business.
In this case, your business enterprise can buy a piece of equipment from a lending company on a loan basis. Here, the equipment will act as your collateral. That is, you will get the complete ownership over the equipment once you repay the full loan amount to the lender on time. In other words, your equipment will buy for itself or you may repay the loan amount by making a profit using the equipment.
On the other hand, equipment leasing is a contractual plan. Here, you can rent an equipment piece from its owner for a certain period. The lease amount shall be paid at regular intervals until the expiration of the contract. However, you will not get ownership of the business equipment during the leasing period.
Even though both these options will be ideal for every business scale, these will be especially useful for startups and low-budget firms. Furthermore, you can consider these options when you plan to expand your establishment on a budget. The type of equipment piece that you can finance or lease includes machinery, furniture pieces, computers, printers, company cars, kitchen appliances, HVAC units, etc. This, however, depends on the type and overall turnover of your business.
Usually, it will be really challenging or impossible for a small startup to finance all above-mentioned factors altogether using their own capital. This is when most people think about equipment finance and equipment lease since both options let you acquire your business equipment instantly. Still, both these options are structured in different ways. While the former is similar to business loans, the latter is more like a rental agreement. It is quite natural for you to get confused when it comes to choosing the right option. In order to help you out of this dilemma, a quick comparison between equipment finance and lease is given below.
As mentioned earlier, you will get the opportunity to own an equipment piece right away even if you do not have a budget to afford it by means of equipment financing. Here, a lending company will back you with the cash to purchase your desired business equipment piece and you can repay it on a periodical basis. The total value of your loan, as well as the repayment period, will depend on the type of equipment you are purchasing.