While owning your business equipment might sound appealing, leasing is a better option for most businesses because it frees up more capital for other purposes. A U.S. Equipment Finance Market Study revealed that 39% of businesses opted to lease new equipment instead of buy.
As a business owner, it’s good to have choices. Here is what you need to know about equipment leasing as well as an alternative you decide you’d rather own those assets.
How Does Equipment Leasing Work?
“Equipment” can refer to just about anything your business needs to operate – from machinery to computers to furniture. Instead of borrowing money from a lender to buy the equipment, the lender will purchase the equipment you need and then lease it back to you for a designated monthly fee.
Most equipment leases have fixed terms and interest rates, giving you the same payment month after month. Your rate will vary depending on your credit history and the lender you choose. At the end of the lease period, you might have the option to purchase the equipment from the lender for an amount specified in your agreement.
The Benefits of Equipment Leasing
When deciding whether equipment leasing is the right option for your business, keep in mind these advantages:
- Preserve cash flow — Because only a minimal initial investment is required, you can preserve your working capital for other purposes.
- Balance sheet — Depending on how you structure it, leases may not be reflected as a liability on your balance sheet.
- Tax deductions — You may be able to deduct as much as 100% of your equipment costs under section 179 of the U.S. tax code.
- Increase flexibility — Equipment leasing agreements often give you the option of adding additional equipment as your needs change.
- Frequent upgrades — Depending on the term you choose, you can get more frequent upgrades of your equipment.
- Maintain business credit — When you lease equipment, you can keep your available line of credit open for other business needs.
- Easy approval — Business loans have stricter approval requirements and leases. You can get faster approval with a lease agreement.
Equipment Loans If You Want to Own Your Equipment
Maybe you decide that equipment isn’t right for your situation. If the lease is going to cost more than a loan or it’s an asset that you plan to hold onto for many years, you might want to own it rather than lease.
If you decide to pursue an equipment loan, there are a variety of unsecured and secured business loans that can meet your needs. When it comes to financing equipment, most lenders will prefer to deal with a secured loan.
Schedule a Consultation With CAB Capital
Interested in accessing working capital for your next equipment lease? CAB Capital helps small businesses find alternative lending solutions that meet their specific business needs. Reach out to us today to schedule a free consultation.