Relying on equipment by a business is nothing new, as they are essential for smooth management and operations. But, there is also the factor of equipment depreciation, which requires replacement, or a business may simply need new equipment to expand. In such a situation, the business can choose from equipment leasing or financing. Let’s first understand what the difference is between the two of them.
Difference Between Equipment Leasing And Financing
Businesses usually avoid using personal or business cash to cover liabilities such as rent, salaries, etc. That is why they go for the option of leasing or financing the equipment. These factors are:
- Type of equipment that the business needs
- The time period of the equipment
- Cost of repair and maintenance of the equipment
- Equipment’s resale value
After they are done with the examination of their needs, they opt for the leasing or financing option. Let us familiarize you with these and how they are beneficial.
Equipment Leasing, also known as Equipment Lease Financing, is a long-term agreement where the company uses the equipment during the lease agreement period. The business owner pays a fee based on the leased equipment in this agreement. The payment is made on a monthly basis, and as the Lease ends, the owner must return the equipment in the condition they received it, as per the terms of the lease agreement.
The agreement can also be renewed for a few more years. Alternatively, they can purchase equipment from the lender at prevailing market prices. Unlike traditional loans, there is no levy of interest on the borrowed equipment in equipment lease financing.
- Since there is no ownership of the equipment, business owners can replace the old equipment with a new one once the time period of the Lease is over.
- As the equipment is leased, there is no negative impact on the company’s cash flow.
- A business can avoid losses as the value of the equipment depreciates over time.
- There is no issue in reselling worn-out equipment as it cannot be used anymore.
- The business owner’s liability can also be reduced by terminating the lease agreement.
Also read:- How To Apply For Business Line Of Credit?
In Equipment financing, the business owner can borrow money from NBFCs or banks to purchase the required equipment. These are similar to borrowing loans but are specific for purchasing equipment. Here, the financing agreement between the lender and the borrower lays down the repayment terms, unlike leasing, where there was no purchase of equipment but rather leasing.
The equipment being lent out is usually offered at a price closest to the equipment’s original price. However, one thing to note is that collateral is not required, as the equipment is taken as collateral. In case there is a loan default, the lender gets the right to take hold of the business equipment and use it to cover the loss by selling it.
Equipment financing usually has nominal interest rates and can vary with the equipment price.
- It allows the business owners to save the company funds or capital to purchase the equipment.
- Compared to equipment leasing, the owner does not have to search for equipment owners willing to lease out their equipment. So, this saves time for the company.
- Equipment financing has nominal interest rates, and the repayment options are also flexible.
- Since the company claims ownership of the equipment, there is no worry about damages, and they can use the equipment the way they want.
- The company can resell equipment to reclaim the charged interest.
Types Of Equipment Lease
Equipment Lease financing is a popular way businesses use and prefer over equipment financing. But, there are types of equipment leasing as well. There are broadly two types of equipment: Capital Leases and Operating Leases.
It is a term lease, and the lender usually cannot cancel it. Companies typically use this type for the purchase of essential equipment for an extended period of time. Under a capital lease agreement, the borrower is responsible for equipment maintenance and must insure the equipment for protection from theft or any other damage that the equipment may cause. The taxes must also be paid by the business that borrows the equipment.
An operating Lease allows a company to get access to equipment for a short period of time as compared to a capital lease. The lender can also cancel the Lease after notifying the borrower. In this type of Lease, the borrower owns the equipment and has to return it after the period.
General Rates And Terms For Equipment Lease Agreement
The rates and terms vary depending on the equipment, but there are some general guidelines for the agreement.
Rate Of Interest
The interest rate is usually fixed, but apart from equipment, credit scores and that business’s industry can also be a factor in making the decision.
Term Of Agreement
The time period of the agreement can depend on the cost and needs. The Lease can be short-term (usually in the case of an operating Lease) as well as long-term (usually in the case of a capital lease).
How To Get Equipment Lease Financing?
Getting an equipment lease finance is relatively simple once a business is qualified. The lender usually checks the time period of the business, credit score, and profitability of the company. Once you check all these, you can apply for a lease using the following steps.
- First, you need to look at the budget you will be willing to spend on getting a lease of the required equipment.
- Next, you need to know the duration of the equipment and decide the period based on that.
- Finally, gather the necessary documentation for the lease financing application and await the lender’s response.
Easy Equipment Lease Financing: Alnicor Business Solutions
If you are looking for easy equipment lease financing, Alnícór Consulting is the right place for you. We provide business solutions to many small businesses and offer equipment lease financing to help them distribute their fixed costs. We provide flexible equipment leases, so you can focus on growing your business without worrying too much about other factors.
Our agreements are based on the needs and requirements of the business. Our expert financial advisors can help you select the best financing option. You can visit our website or contact our customer service for more details.
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