Buying and maintaining new equipment for a small company is expensive. Considering how small businesses need funding, they must explore all their alternatives. Furthermore, after investing in equipment, within a short time, there is a new product in the market that is more efficient, making yours inferior and obsolete. Fortunately, the solution to this problem is in equipment leasing.
What is Equipment Leasing?
This is a form of financing where an owner of a small business rents equipment to use instead of buying it. Equipment can range from vehicles, machinery, computers to other tools. You lease the equipment for a while, and after that period, you can either renew the contract, return the equipment or buy it. Equipment leasing differs from equipment financing, where for the latter, you take out a loan to finance purchasing equipment.
How Equipment Leasing Works
When you lease the equipment, you get into a contract with the owner or leasing company. You are given an agreement stating the period of the lease and the amount to be paid each month. Different leasing companies have different rates, and your credit score is also likely to play a role in the quoted rate.
Pros of Equipment Leasing
It is ideal when using equipment that needs upgrading, often like electronic devices.
It allows you to obtain the latest equipment at an affordable upfront cost.
Cons of Leasing
When you accumulate the monthly payments plus the interest, it can add up to the cost of the machine.
Some terms enforced by lenders are not favorable. For instance, buyers may be forced to pay a mandatory service fee.
Types of Equipment Leases
The two main types of equipment leases include operating lease and finance lease.
Operating Lease- This type of lease allows a business to use the equipment for a certain period without ownership. Generally, the period of the lease is shorter than the equipment’s economic life.
Finance lease- The lease structure is almost similar to the operating lease, only that the company leasing the property can report that equipment as the company’s asset.
Leasing equipment is often considered a flexible financing alternative for businesses. It helps a company continue running and not lose customers. That is why you should consider contacting Ideal Financial Group if you need financing to keep operations afloat.