Equipment leasing versus equipment financing: What are they, and which one is right for your business? To help you answer such questions, this article provides an overview of equipment leasing and financing as well as the pros and cons of each.
Equipment leasing is essentially the renting of equipment. A lender purchases the equipment and loans it to your business in exchange for payment installments. At the end of the lease, you will be able to renew the lease, end it, or purchase the equipment (if the option to do so was part of the leasing agreement).
One upside to equipment leasing is that your business will be able to move on to other equipment once it becomes outdated or is no longer useful for the business. Additionally, leasing requires less cash upfront, according to Forbes.com, with the downside of typically being more expensive over time than equipment financing. Another downside is that unless the agreement is set up with a purchase option, it is not a direct path to owning equipment outright.
Equipment financing is employed by businesses who wish to purchase equipment, rather than borrow it. Unlike with equipment leasing, the business is the owner of the equipment. To obtain the equipment, the business obtains a loan from a lending company and then makes payments back over time, similar to how a mortgage works.
The upside to equipment financing is that it is a direct path to ownership of the equipment. The downside is directly related to the upside: Once the loan is paid off, the equipment is yours, even if it is obsolete. That means equipment financing is a good choice if your business projects the equipment to be useful and up-to-date for a long time.
For more information on financing and leasing options as well as other topics, check out the rest of Integrity Financial Capital’s blog posts.