When you’re just starting your business, you’re expected to spend more than you earn. This means you will probably find yourself needing to purchase essentials for your operations, whether they’re specialized tools, heavy machinery, or transport vehicles. However, you may not have the capital at the moment to buy them.
Fortunately, you can opt to get equipment loans or equipment leasing to acquire much-needed tools for your business. Learn what kind of financing options are available to you.
Understanding Equipment Loans & Equipment Leasing
Equipment Loans
An equipment loan for a small business, also referred to as equipment financing, allows you to buy the tools and equipment you need. Your lender will give you the capital to purchase the tools or equipment as a loan specific for the items you need to operate or update.
The amount you receive is based on your plan and the lender’s terms, allowing you to borrow most or all of the total value you need. Once you’ve completed your repayment, you will fully own the tools or equipment you bought.
Equipment Leasing
Equipment leasing for a small business is different in that you won’t own the tools or equipment outright. With this option, your chosen lender will buy what you need from a vendor before renting it out to you every month. At the end of your lease contract, you have the option to renew, return, or purchase the tools or equipment.
What Are the Advantages to Equipment Leasing or Equipment Financing?
Although both options allow you to use the latest tools and equipment in your operations, their structures provide different advantages that are worth understanding.
The Advantages of Equipment Financing
- No Need for Cash on Hand: One of the reasons this is considered one of the best financing options for a business is that you don’t have to pay any upfront costs, giving you instant access to the loan after your application gets approved.
- Tax Incentives: Equipment financing is ideal for small businesses because it can be filed as a tax deduction, allowing you to lower your annual tax liability.
- Less Documentation Needed: Unlike traditional loans where lenders require your entire financial history and credit score, equipment financing is more favorable and forgiving to small businesses. Most lenders simply need you to make your repayments on time.
The Advantages of Equipment Leasing
- Use Current Technology: Equipment leasing is ideal for small businesses that need to stay up-to-date with the latest tools and equipment in their industries. It lets you use the most current technology without the cost and commitment of buying them.
- Flexible Cash Flow: Equipment leasing doesn’t require a down payment, allowing you to use your cash on hand to pay for other needs such as payroll, bills, and inventory.
Which is Better for Your Small Business?
When deciding on a business financing solution, you should consider your immediate needs and how to best address them.
Whichever option you choose, you should remember that it will only be as good as the lender you choose! Probably is your partner in growing your business for both equipment financing or equipment leasing!