Leasing or Owning Business Equipment: Know the Difference Between Two

business equipment

Any business is a big challenge. While starting a business, a lot of processes are involved. Whether it is a product or service-based business, arranging necessary equipment is a vital part. Smooth operation of a venture is dependent primarily on the equipment along with the basic process. In individual business, the requirement of tools is different. For example, a bakery shop requires utensils and apparatus related to baking and keeping the items in good condition. However, a bookstore will require entirely different apparatus and equipment for safekeeping of the books and related items. In each case, the items are as important as the apparatus or tools that are immensely necessary for operating the venture. Even after the initial stage is over, a business might require the equipment while upgrading, repairing or replacing the old ones. However, for arranging the equipment either initially or during up-gradation, you need some financial assistance. Right financing options can get you the things that you need for your business. However, there are two options, one is the financing of equipment and the other one is leasing.

What are equipment financing and leasing?  

For the purchase of equipment, you need financial support, either from your own or from anywhere else. When you need external financial support for purchasing equipment, taking loans for the same can be an option. Equipment financing is something that is designed especially for the purchase of types of equipment, required in business. You need to repay the debt over time and once the debt is completely repaid, the equipment will be your assets. In some cases, the equipment acts as the collateral itself and if by any chance you default, the lender owns the items. Sometimes, the lender imposes a personal guarantee or blanket lien.

In case of leasing, you can take the business equipment for lease. You need to pay a certain amount for the same, but there is no chance of losing an asset. Paying the rent for equipment on monthly basis is enough to help you for using those without purchasing or personal guarantee.

Difference between leasing and owning

In leasing, you do not have to worry about clearing any debts, but only to pay the lease rent. At the end of the lease, you can either renew it or can buy the same. While you want to own the equipment through a loan, you need to make down payment as well as to pay monthly interest for the loan. However, in case of leasing, no down payment is necessary. No collateral, personal guarantee or lien is necessary in case of leasing. Taking equipment on the lease is beneficial than financing in terms of getting approval. Getting a business loan or an equipment loan needs approval from the financial institutions, whereas getting a lease is much easier to qualify for the approval. However, for long-term, leasing is not a good option in terms of costs. Monthly rent in case of leasing is more compared in long-term and you may end up paying more in leasing equipment than in taking loans for that.

However, it all depends on your business and the type of tools or equipment you need as well as your financial condition that you should take a loan or lease it.

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