A common dilemma for small businesses is needing new equipment but not having enough cash to buy it. This leaves you with two options: equipment leasing and equipment financing. Before explaining the differences between the two, let’s re-define the second term so it is easier to understand. Equipment financing is simply another way to refer to a small business loan that is used to purchase equipment. Several business funding programs can fulfill the purpose, and the one that is best for you usually depends on a variety of factors. But rest assured: Thanks to companies like United Capital Source, smaller businesses looking to buy new equipment can access the very best business loan for their needs and cash flow situation.
We can likely help you figure out which business loan makes the most sense for you. The real decision is whether your desired investment is truly worthy of a loan.
What Is Equipment Leasing?
Equipment leasing is a lot like renting an apartment, except you usually don’t have to put any money down. You would only have to make fixed, monthly payments until the expiration of the lease agreement. These payments will likely be lower than the monthly payments of a traditional business term loan. Should the equipment require maintenance when it is being leased, the company that leased the equipment to you is responsible for the cost.
Once the lease agreement expires, you will be able to renew the lease, terminate the lease, or possibly purchase the equipment for a price based on current market standards. There is a good chance that in the long run, leasing will cost you more than buying. But this disadvantage may be outweighed by benefits that, depending on your industry, may be more important than saving money.
What Is Equipment Financing?
Equipment financing, or small business loans designed for purchasing equipment, are used by dozens of industries. Examples include auto shops, metal manufacturers, restaurants, dental practices, or landscaping companies. Since these industries are not alike, we recommend different business loans with terms that will not obstruct cash flow. While a restaurant is typically an ideal candidate for a merchant cash advance, a landscape company might be better suited for accounts receivable factoring. In many cases, the deciding factor is how the equipment will affect revenue and how long it will take for that increase to take place.
Clearing Up A Major Misconception
Proponents of leasing will tell you that a big advantage is not having to go through the process of taking out a business loan. But if you work with a company like United Capital Source, it could take just a few days for funds to reach your bank account, regardless of which business funding program you are assigned. During repayment, any questions you have will be answered promptly with a single email or phone call.
In fact, taking out a small business loan with United Capital Source will almost certainly be less tedious than taking out a lease. The leasing company will likely ask you to complete tedious paperwork, and the lease terms are often non-negotiable. Small business loans from United Capital Source, on the other hand, require minimal paperwork, and our terms are among the most flexible on the market.
Advantages Of Leasing
Leasing might be a better option if your industry requires you to consistently implement up-to-date technology. Rather than buying new equipment every year or so, you would be able to return the outdated equipment at the end of your agreement and open a new lease with the more advanced version shortly after.
Another major benefit of leasing is that it is usually tax deductible. But you should not assume this applies to you without consulting a tax professional.
Advantages Of Financing
It’s already been established that buying is cheaper than leasing. Businesses choose the latter option because they can’t come up with that much money at that specific time. But unlike traditional business lenders, United Capital Source is capable of approving numerous business loans when revenue is down or constantly fluctuating. So, even if you are in your slow season, you could still access programs like merchant cash advance or standard working capital loan.
The maintenance aspect of leasing is also a double-edged sword. You have to rely on the leasing company to repair the equipment, and who knows how long that will take? There’s nothing you can really do to make them work faster.
And just like leasing, substantial tax deductions may be allowed for large equipment purchases.
We Can Help You Decide
Not sure whether you should buy or lease? That’s what we’re here for. The business financing experts at United Capital Source are happy to advise you on this decision. Keep in mind that if you intend to use your desired equipment for a long time, buying will likely be your best bet. You will ultimately gain another asset that will help you obtain a second, larger business loan in the future. Besides, if you’re already this concerned about buying or leasing, it’s probably because you know you’ll need an even more expensive piece of equipment sooner rather than later.