If you are planning on expanding your business venture, you will, at some point need to bring in new equipment to sustain operation and maintain the standards of your business. Depending on the budget and the type of equipment, you may either opt to buy the equipment or lease it for a period. But deciding which equipment to buy or what to lease isn’t an easy task. This guide helps you make you the right decision between leasing and financing.
Equipment Leasing- How It Works
Leasing equipment entails renting an asset from a dealer and agreeing to pay periodic lease fee for the same. Leasing is ideal for equipment with a short usability cycle. Such include equipment prone to lots of wear and tear, software, high-tech computers, and certain medical equipment that have definitive duration of use. You can also lease out long lasting assets with a view to purchasing them out at the end of the lease period.
Types of equipment leases:
- Sale-leasebacks
A sale-leaseback occurs when a company sells equipment to a leasing company and then leases it back for use. It’s often done to free up funds that can then be used on other realms of the business.
- Dollar-buyout lease
Under this arrangement, a company commits to buy out the leased equipment at a nominal price at the end of the lease period.
- True Lease
This is a leasing arrangement where the leasing fee payable does not exceed 75 percent of the equipment value. It’s often cheaper than a bank loan.
- TRAC Lease
A customized form of true lease generally used for automobile equipment such as tractors, trucks, and trailers.
Benefits of Equipment Leasing
Flexible Lease Payments
With equipment leasing, you have an option to pay monthly, semi-annually, quarterly or annually depending on your budgeting regimen.
Fast approvals
Unlike traditional financing, equipment leasing dealers aren’t overly concerned with your credit score or loads of documents to enter into a lease contract. This makes the rate of lease approval better than with traditional financing.
To access the companies that can give you fast approval for equipment financing or leasing, visit Smarter Loans – Canada’s Loan Directory
Affordable
You won’t need huge sums of money to rent out equipment as the periodic installments are enough to secure a lease.
Helps keep abreast with technology
If you operate within a field that’s often disrupted by technological changes, leasing out equipment or products that have a short life of use helps you keep in step with current trends.
Overview of Equipment Financing
For equipment financing, a lender avails the funds to buy equipment. You repay the loan facility as you continue using the equipment. This method is ideal if your business deals with equipment that doesn’t become obsolete within a short lifespan.
Merits of Equipment Financing
Tax Incentives
If yours is a small business, you stand to qualify for tax deductions to a maximum of $500,000. There are certainly no better deals out there.
No upfront costs
Equipment leasing is an ideal way to finance your business operations when you are cash strapped. The lender takes care of the finances.
Light document
Since the equipment you are purchasing often acts as the collateral for the loan, lenders aren’t concerned with detailed documentation of your finances. This makes the application process easy and fast.
Which option should you go with?
The decision on whether you should lease out or go for equipment financing should be pegged on the kind and usability of equipment that you require. If the equipment has short usage span, it makes sense to lease out. For equipment with a long lifespan, seeking for financing will be a cost-effective route that you should take.
Still not sure? Check out Smarter Loans to find the most reputable providers of truck financing, bus and coach financing and even new and used boat financing in Canada
