Is there any better feeling in the world than knowing that you own something outright? From a home to a car – being able to say that you own the possession in its entirety can be very reassuring, but unfortunately we’re not all in a position to buy equipment at the drop of a hat. Assets cost money and when it comes to equipping your business with the tools and resources that it needs to function; you could well be looking at tens of thousands of dollars to buy what you need. So do I finance or lease?
Thankfully, there are two solutions that can help those without the financial support to cover equipment costs; without needing to fork out the cash up front. They are commonly referred to as leasing and financing – and although similar in nature, each option carries its own set of advantages.
So, Do You Finance Or Lease Business Equipment Purchases?
First lets define the 2 options…
What is Equipment Leasing?
In the simplest terms, leasing is the act of ‘hiring’ equipment, machinery and products without actually having to own them. You could approach a supplier and ask to use their facilities, under the condition of you renting them until you no longer need them. All lease agreements have their own terms and conditions, with some carrying a ‘lease period’ – which when ended, may allow the option to purchase the equipment.
What About Equipment Financing?
On the other side of the coin, financing works when a lender extends a loan offer to you, as a borrower. If you accept it, you will receive a sum of cash to cover the cost of your businesses’ equipment and you can focus on repaying what you’ve borrowed over a period of time. Some agreements can take several years to pay off, while others are shorter. Most lenders are flexible when it comes to the types of terms that they propose, which can be beneficial in and of itself.
So, Who Will Own The Equipment?
In the case of leasing, the supplier will typically retain ownership of the assets. If you want to use a company car without having to buy one you could lease it, use it for a few months and only pay for the time that it’s in your possession. Where financing is concerned the lender will have all rights to the vehicle’s ownership, until the loan has been paid off in its entirety. This means that it can be used as collateral should payments not be kept up with.
What If Cash Flow Complications Arise?
If you as the borrower struggle to meet your repayments when leasing, then the piece of equipment will simply be returned to the supplier. Where financing has been used, the equipment might be repossessed instead; but most lenders will be willing to come to new terms if it means that they’ll stand a better chance of seeing a return on their investment.
Where Does Item Depreciation Come Into Things?
If you purchase a car under finance, then you may find that once your repayment term has been fulfilled, the vehicle no longer carries the value that it did initially. This is a minimal concern when leasing, as the agreement can simply be ended in favour of a new one if the need arises.
As you can see, both options offer their own advantages and drawbacks, so choosing the right one will depend on what you are expecting to achieve come the end of your agreement. If you’d like a loan to purchase equipment for your office or work space that you’ll eventually own outright, then finance may be the right option. For short term requirements, leasing may be better suited to your needs.