To Buy or to Lease? – Getting Equipment for a New Business

Many business owners find themselves in a similar situation each year. They need to purchase equipment but their cash flow is simply too tight to allow for the necessary purchases. A bank loan might be an option, but tying up a business line of credit can be risky. Equipment leasing provides an easy and simple solution for this type of situation.

Equipment leasing provides many benefits to business owners who want to grow their businesses, but to whom outright purchase does not appeal. In fact, 8 out of 10 businesses based in the U.S. lease at least some of their equipment, according to the Equipment Leasing Association. An equipment leasing agreement allows a business owner to use the equipment they need without having to pay much, if any, money upfront. The purchase of the equipment can be made on behalf of the business owner by an equipment leasing company. The business owner then becomes responsible for making regular payments that are applied toward the purchase.

There are two different types of equipment leasing agreements. They are true and finance. When considering equipment leasing as an option it is important to choose the option that will best suit your situation. In particular, it is important to consider what you plan to do with the equipment once the equipment leasing agreement has expired.

A finance equipment leasing agreement works well for companies who believe they will keep the equipment at the end of the lease. The goal of this equipment leasing agreement is to provide an option for purchase at the end of the lease. Typically, the purchase price is the full value of the equipment in question.

With a true lease, payments typically do not cover the value of the equipment. At the end of the equipment leasing agreement, the business owner can simply walk away or they may choose to purchase the equipment at a fair market value price.