You may be just starting a new venture, or perhaps you’ve been in business for a while and are now considering adding or replacing equipment such as vehicles, machinery, and technology. However, you may not have the means or the desire to pay for the total cost of the equipment upfront. Below, you will learn about financing and leasing, two options for funding your business equipment.

Equipment Financing

Equipment financing is a specific business loan for funding new and used business equipment purchases. Since the financed equipment serves as collateral, this type of loan may be available to risky business ventures and companies with good, average, and poor credit ratings. If you default on the loan, the equipment which secures the loan may be seized and liquidated to cover losses and recuperate some of the owed funds. You may borrow up to the total value of your equipment at an affordable fixed interest rate. 

It is relatively easy and quick to qualify for this type of financing, making the funds more accessible. Repayment terms may consider the type of equipment, its condition, and expected life. Your down payment may comprise a percentage of the price of the equipment financed. Putting up a higher down payment may reduce your interest rate.

The cost of borrowing would consist of the amount borrowed at a fixed interest rate over some years. The financing firm would likely make a direct payment to the equipment vendor. You would make fixed payments for a set number of months, after which you would own your equipment. However, by the time you complete your payments, your equipment may have become obsolete.

Equipment Leasing

You may want to consider equipment leasing if you do not have the funds for a down payment, prefer to trade out your equipment rather than own it, or need the equipment for only a short time. With equipment leasing, the leasing company would purchase and own the equipment and provide you with the ability to use it. There is no need for collateral to back an equipment lease, plus the leasing company makes any needed repairs to the equipment. At the end of your lease term, you may choose to buy, continue to use, swap out, or return the equipment. Long-term equipment leasing is relatively more expensive than equipment financing because of a somewhat higher fixed interest rate. Although, you may receive an income tax break for equipment leasing.