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Equipment Financing vs. Leasing, What You Need to Know

Are you confused about the differences between equipment financing and leasing? Are you unsure which assets are considered “equipment”? The following information will answer the important questions you have, and help you determine which option is right for your business.

Equipment Financing

Equipment loans are available from a variety of sources, including: commercial banks, credit unions, online lenders and government-backed SBA loans. You might be able to use the equipment itself for collateral, depending on the nature of the equipment and the lender. In some cases – depending on the type and cost of the equipment being purchased – equipment loans can be smaller amounts than a typical bank loan. The terms for equipment financing will differ from lender to lender.

Online lenders will offer financing that is suited to purchasing equipment. Yes, interest rates will be higher than a traditional lender, but you will experience much faster application and funding times than with a bank. Sometimes, as soon as 24 hours. In contrast, traditional lenders will require a down payment (likely 20 percent of the loan upfront).

Equipment Leasing

As it sounds, the main difference is that you are leasing rather than borrowing. The lender is the one making the purchase and then leases the equipment back to you for a flat monthly fee. Most equipment leases will involve a fixed interest rate and fixed term. In some cases, it is lower than the payment on a loan would be. Keep in mind interest rates and terms will depend on the leasing company and your credit profile.

At the end of the lease, you may have the opportunity to purchase the equipment at fair market value or a predetermined amount. While there is no rule about what type of equipment you can lease, there are some types of equipment that make more sense to lease than others, like: high-tech computers, software, some medical equipment and other equipment that experiences wear and tear.

How Do You Apply?

Make sure you have all necessary documents ready; the requirements will be different for traditional lenders and online lenders. For example, a bank may require a thorough business plan, while an online lender may not.

  • To apply at a bank, you will need to meet with a loan officer at the bank.
  • If you are applying online, the application can be filled out in a few minutes and submitted online.

Having trouble working with a traditional lender? Are lenders hesitant to work with your business type? You can still secure equipment financing or leasing with an alternative lender like First American Merchant. Be sure to ask how their high-risk business loan could help you obtain the equipment you need to grow your business. The experts at FAM have years of experience in helping businesses secure the funds they need to expand.

The application takes just minutes to complete. You can secure the cash you need in as little as 24 hours, and you gain 24/7 support for any questions you may have. To learn more, contact FAM’s team today.