Equipment funding is the capital used to lease or buy equipment for your business. When evaluating your equipment funding options, it is essential to choose the best possible course of action for your business to get the needed equipment.
Equipment Financing vs. Leasing
Equipment financing is a loan that helps you purchase new equipment by using the equipment itself as collateral. This type of financing, however, requires the end user to invest a down payment while the loan finances the remaining amount. A lender approves you for a loan based on the equipment value, which you'll pay back with interest over time. In short, the borrower owns the equipment, and the lender has a hold on the equipment until it is paid in totality.
An equipment loan doesn't necessarily take the piece of equipment into account so should it become obsolete, the loan isn't affected. Depending on the borrower's situation, this may not be a viable option if you do not have the cash reserves. However, if you have enough money to invest, and the piece of equipment you intend to finance will last a long time, then this might be the best way to go.
Equipment leasing, on the other hand, operates more like a rental agreement in that you lease equipment for a monthly payment. An equipment lease will require no down payment and covers only the value of the equipment expected to be utilized during the lease term.
At the end of lease period, the lessee has the option to buy the equipment for its remaining value or walk away from it. If you choose to purchase the equipment at the end of the lease period, the title to the equipment is released to you at that time. Even in a bad economy, your lease payments will always remain the same regardless of rates and inflation. Equipment leasing might be a better alternative if you are planning to keep a piece of equipment for the short term rather than purchasing and reselling it when you no longer need it.
The Bottom Line
Whether you choose to lease or buy your equipment, both will offer significant value to companies. The key to making the right decision is figuring out the exact needs of your business as well as the purpose of the asset.
CMS Funding can help you make the best decision so that your equipment expenses don't interfere with the profitability of your business. If you are still unsure about the differences between financing and leasing equipment for your business, contact us today for more information.