What You Need to Know When Leasing Business Equipment
Sometimes business owners find themselves in a catch-22 in which the business needs new equipment to get out of a financial hole, but it is too cash-poor to afford new equipment. If you are in this exhausting position, don’t give up. Equipment leasing/financing can help.
When you lease or finance your equipment, you can make small monthly payments rather than one lump sum. It’s easy to see how a cash-strapped business owner may be interested in this arrangement. Here are some basics you should know before jumping into equipment leasing/financing:
How it Works
A lease on business equipment works a lot as it does for a car. You, the borrower, pay a fixed monthly rate for a pre-determined amount of time while using the equipment. At the end of the contract, you can choose to pay a lump sum to own it outright, continue paying a monthly lease or return the object.
Financing is similar in that you pay a set amount each month. However, each payment goes toward you owning the gear. At the end of the contract, you owe nothing and own the equipment outright.
What You Can Finance and Lease
You can get help affording much more than a car when you own a business. Whether your company needs new computers, industry-specific tools, or something else, equipment leasing/financing can help.
How to Get It
Often, the company that owns the equipment can lease or finance it for you. This option cuts out the middleman. If you want to build your business credit, make sure to put this lease in your business name rather than your name.
If you need something that the company won’t finance, you may be able to talk to a small business lender about getting financing. The bank may not be able to lease the equipment, but it can give you a loan to fund buying it outright. Then, you can pay the bank back in monthly installments.
The Downside
As with anything in business, there are some downsides to equipment leasing/financing. For example, startup businesses may need to use the owner’s personal credit to secure the funding. This can make any new entrepreneur nervous.
Furthermore, you end up paying more for the item over the long term than you would if you had bought it outright. It’s important to weigh how much you would pay for the duration of the lease against how much your business could benefit. If it’s an essential piece of equipment and you can’t afford it all at once, the higher long term cost could be worth it.
