Equipment leasing is an increasingly popular way to fund new machinery. It allows your business to stay up-to-date with the latest technology without tying up capital for several years. Leasing is also a practical option if you aren’t able to afford an outright purchase but can manage smaller monthly payments instead. In this article, we break down everything you need to know about equipment leasing so you can decide if it’s right for you.
What is Equipment Leasing?
Equipment leasing is an alternative option to purchasing in full. Instead of paying the total amount upfront, you pay smaller monthly amounts over a number of years. When the lease ends you will usually be given the option to return the equipment, upgrade to newer versions, or buy it outright. The price paid will often take into account factors like depreciation and the total amount invested during the course of the lease.
Benefits of Leasing Equipment at a Glance
Leasing equipment can offer numerous benefits to businesses of all sizes. Most leasing companies don’t require a large down-payment or deposit which makes it an affordable option. Equipment leases are usually eligible for tax credits too which means you may be able to deduct them as a business expense. It also gives you more flexibility because you can choose to trade-up at the end of the term instead of being stuck with obsolete equipment.
Is Equipment Leasing for You?
If you’re considering leasing equipment for your business, then it’s important to ask yourself a few key questions;
- How long will you need the equipment? If it’s for short-term use then leasing tends to be a cost-effective option, but if it’s for 3+ years then a business loan may be a better choice.
- What is your budget? Even though leasing requires a lower initial outlay, you still need to factor it into your cash flow and monthly expenses.
- When will the equipment become outdated? As technology improves more and more quickly, equipment becomes outdated and obsolete even faster too. This is something to consider when deciding if you want to purchase outright or trade-in at the end.
Thinking about these questions can help you to identify if leasing is really right for your needs. By considering the duration, budget, and pace of innovation, you’ll be able to decide whether leasing is a better option than applying for a loan.
What Types of Equipment Can Be Leased?
Leasing can be used to fund lots of different types of equipment. There’s an almost endless range of products that can qualify but there are a couple of criteria that need to be met. Firstly, the equipment in question usually needs to have a high value. Depending on the items, there might be a minimum purchase of between $3000 to $50,000. The equipment also needs to be considered a ‘hard asset’ which tends to be something that is physical and tangible (as opposed to soft assets like warranties and training courses).
If you’re looking to purchase equipment that needs updating on a regular basis, then leasing can be a more cost-effective option than purchasing outright. Computers, electronic equipment, and high-wear machinery will often fall into this category. They all become obsolete or require replacing on a consistent basis so it makes sense not to be tied down to long-term ownership.
Possible Downsides of Leasing
Equipment leasing does have its downsides too and it’s important to consider all aspects before making a decision. Interest is charged on leased equipment which adds to the cost over the long-term and can make it more expensive than the outright purchase option. Lenders tend to dictate the lease duration too, so you may end up having to lease the equipment for longer than you actually need it. If you need to store the equipment when it’s not being used, then that can add extra costs too. Another thing to consider is that you don’t own the equipment outright which means you can’t have it customized to suit bespoke needs.
The Leasing Application Process
If you’re wondering what the leasing process entails, then here is a summary overview. It breaks down the application into five stages so you know exactly what to expect.
- Complete the equipment-lease application which may require you to provide financial information upfront or shortly after.
- The application is processed and you are notified of the outcome, usually within 24-48 hours.
- Review the final lease structure which outlines interest rates and monthly payments then sign the documents and submit them back to the funder along with an initial payment.
- Once the funder receives and processes everything, the lease takes effect and you are able to accept delivery of the equipment.
- Within another 24-48 hours, the funds will be released either to you or the equipment manufacturer.
Other Considerations When Leasing
There are also a few other things to be aware of when leasing business equipment that can result in extra costs. You’ll usually be expected to take out liability insurance and sometimes asked for proof of your policy. Additional costs like maintenance, repairs, and legal fees may be encountered depending on the lease structure you have in place. You may also be liable for the cost of transporting or shipping the equipment when it’s returned. The most important thing is that you read the small print carefully so you understand all of your obligations from the start.
Alternative Options to Equipment Leasing
If you want to finance new equipment, then leasing is not the only option. Small business loans, factoring services, and lines of credit are all popular alternatives. Loans, in particular, offer many of the benefits of outright ownership and can also be paid via smaller monthly payments. You also own the equipment at the end of the term which may be preferable depending on your needs.
However, business loans can be tricky to get for brand new businesses or those with a poor credit history (especially through traditional institutions). Alternative lenders like United Business Funding can be a more practical option since they have streamlined application processes and faster turnaround times. They also have more flexible requirements when it comes to length of trading history and personal credit score.
Equipment Leasing Summary
Leasing can be a cost-effective method for securing new equipment and technology for your business. It allows you to benefit from the latest innovations without tying up capital with the choice to purchase or return at the end of the lease. Since it’s paid monthly, leasing may also be an affordable option for businesses that don’t have the capital to invest.
Learn More About Our Finance Options
Equipment financing from United Business Funding can give you the capital you need, for today and tomorrow. We’ll take care of all aspects of finance, so you can focus on running your business. From servicing customers to planning for the future, you’ll be able to concentrate on the elements of the business that matter to you most.
Our hassle-free application process is fast and simple, with unrivaled support the whole way. Learn what many small businesses across the country already know: UBF business loans and merchant cash advances are valuable tools of the trade.
CLICK HERE to complete an application online or call FREE 888-351-3863 to speak with one of our funding advisors today.