A new year. The perfect time to assess where your business sits today, what went well last year, what didn’t go as planned, and how you can do better going forward. If you’re currently looking at the objectives for 2022, you are likely looking at your business finances as well. Any moves, big or small, typically involve working capital.
For example, are you looking at buying new equipment to take your business to the next level and take on multiple or larger orders? If so, you’re likely going to need some financing for such a large purchase. As you look over your options, you might’ve stumbled across equipment leasing.
What is Equipment Leasing?
As it sounds, equipment leasing is a form of financing that allows your company to rent equipment. This includes machinery, computers, vehicles, and more. You lease the item from a vendor or leasing company for an agreed-upon period of time. Once that time is up, you must either return the equipment, renew the lease or purchase it.
In truth, this method is more expensive in the long run compared to simply purchasing the equipment. But it can mean lower monthly payments for your business than if you turned to a traditional financing option. It all depends on who you choose to lease with.
The Pros and Cons of Equipment Leasing
Your biggest question is likely, How do I know if equipment leasing is right for my business? The first place to start is to compare the pros and cons.
- Allows you to upgrade equipment regularly. It simply isn’t practical for most businesses to swap out equipment for brand new every year or two. A lease can help you equip your company with the latest and greatest without having to spend so much.
- Test out the equipment first. Not sure if you really need a piece of equipment? Or whether it’s right for your unique needs? Leasing allows you to try out a piece of equipment and determine if it’s what you really need.
- Favorable terms and conditions. Equipment leasing involves lower monthly expenses than if you purchased the equipment with a loan. Also, it typically does not require a down payment or collateral to secure.
- Expensive in the long run. While the leasing option involves lower payments, it is more expensive in the long run than purchasing it outright.
- This could result in no equipment. At the conclusion of your lease, you will have to decide whether you are going to opt for a new lease or buy the piece of equipment – or make some sort of another arrangement.
- Unable to label the equipment as an asset. Depending on the equipment lease, you will likely lose the ability to list the equipment as an asset; this will affect you when applying for a business loan or evaluating the value of your business down the road.
All in all, there are many benefits to equipment leasing. For many, it is a very viable option for lease-to-own financing. The key is to make sure you know the lender you’re working with and research all of your options. There are a variety of types of business loans that might also be worth considering and more suited to your needs.