At one point or another, all manufacturing businesses face the same dilemma – to lease a piece of equipment or to take an equipment loan. Although both approaches have their pros and cons, both provide a good solution to common financial problems in this sector.
The question is, how can you determine which one is better for your specific needs? By understanding their differences, of course.
And while many business experts advise entrepreneurs to apply for leases and loans, only a handful of them take the time to explain what one or the other actually entails. Getting to know their upsides and downsides is of crucial importance not only for your decision-making process but also for your long-term strategies and financial planning. Without further ado, let’s see what leases and loans are.
What Is Equipment Leasing?
With the first of these two options, you’re basically renting a piece of equipment from Startup equipment financing. You’re contractually obligated to pay a monthly fee for an agreed-upon period of time, after which the company will offer you to buy a piece of equipment at its current market value.
What Are Equipment Loans?
Unlike equipment leasing, equipment loans grant you the money needed for purchasing the piece of equipment you need for your day-to-day business operations. You’ll be given a certain period of time to pay off your loan, as per the agreement. After that, the equipment you’ve purchased is entirely yours.
So What’s the Big Difference?
Equipment leasing is more suitable in situations when you need an expensive piece of equipment that you cannot pay for upfront. In these situations, equipment leasing frees you from both upfront payments and additional collateral, so that you can stay fluid and allocate resources in the best way.
Once your lease ends, you can choose one of the several options – to renew your lease, to give back the equipment you’ve used, to buy it off at a very affordable price, or even to trade it in for a newer, updated version. This decision is entirely yours, allowing you to make a choice based on your needs.
Equipment loans don’t require upfront payments and collaterals either, and they are typically just as easy to apply for and secure as equipment leases. The only difference is – after you’ve paid off your loan, you can’t choose whether or not to lose the equipment. What you’ve paid for is yours to keep.