Equipment Financing vs Leasing: Which is Right for Your Business?

When it comes to buying large equipment, most businesses need to either lease or finance the purchase. In some cases, a business may have the upfront cash to make the purchase but may wish to preserve the cash for other expenditures. Whatever your business situation, the first important step is to determine whether equipment financing or leasing is right for you. Here are just some things to consider when making that decision.

What’s Your Budget? 

Cost is often the number one determining factor when considering whether to lease or finance your large equipment purchase. Lease options can come with a lower monthly payment than a loan, making them easier to work into the budget. However, just because a lease offers the lowest payment available, it doesn’t necessarily make it better than a loan. If your budget can afford a loan payment, it may make the best sense in the long run. 

How Soon Will the Equipment Become Outdated? 

Some machines, such as computers can become obsolete quickly while others remain current for a much longer time. One important factor to consider when looking at leasing or buying is whether the term of the lease or the loan outlasts the equipment. If you’re opting to rent, look for a lease that allows upgrade or replacement options to lessen the risk of being stuck with outdated equipment. When choosing a loan for equipment financing, be sure the term of the loan doesn’t last longer than the life expectancy of the item being financed.

How Long Will You Need to Use the Equipment? 

Finally, when considering lease or loan, take into consideration how long you will need the machinery for. If your purchase is for a short term, one-time project, it may make more sense to just lease what is needed for the short term, leaving you with fewer overall payments.  If you’re investing in tools for long term use, or for the growth of a business, financing might be a better investment. At the end of the loan, you will have added a valuable asset to your business.

Your budget, the life expectancy of the equipment and the length of time your company will need the equipment for are just some of the important considerations to think about when comparing equipment financing versus leasing. Both loans and leases come with potential benefits, depending on the needs of your particular business. 

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