Difference between equipment leasing and financing

equipment-financingIf you are starting a new business or are already a successful one, chances are you are in need of some sort of equipment. It can be computers for your Tech Company, ovens or refrigerators for your bakery, or even trucks if you have a moving company.  No matter what kind of equipment you need, you also need a way to get it into your company. Since most companies can’t afford to buy necessary equipment outright, there are ways to get equipment quickly and easily to get your business off the ground or continue to have it be successful. You can either lease your equipment or finance, but what is the difference?

Think of financing and leasing equipment as if it was a car. Almost all of us have a car, what differs is the way we purchased it. If we decided to lease a car, we agreed to terms of a lease and the length, usually 5 to 7 years, and make monthly payments on the lease. At the end of the lease, we give the car back or exchange it for a newer one. If we decide to finance, we agree to a loan and the term, and once the loan is paid off in full, the car is ours. Leasing or financing equipment is very much like this.

If you decide to lease equipment, you would agree to a term and monthly payments. These payments would also factor in an interest rate, which can be anywhere from 8 percent to 30 percent. Most parameters of a lease are tax-deductible. Companies that lease equipment to you generally hold themselves responsible for regular maintenance or if any issues with the equipment arise, taking the burden off of you. Once your term has ended, you can renew your lease for a newer or more modern piece of equipment, or just walk away. Keep in mind that leasing terms are often complicated and binding, leaving no wiggle room if you want to terminate early, and often come with extra fees.

If you think financing is the best way to get your equipment, you will get a loan and make monthly payments for the decided amount of time. You are sometimes required to make a down payment. Finance loans are not tax-deductible, and you will only see write-offs for the interest you are paying toward the loan. At the end of your term, the equipment is yours to keep. You will be responsible for any upkeep, and you might even be saddled with outdated or unusable equipment, especially if your loan term is long.