What is the difference between Equipment Leasing & Equipment Financing?

Firstly, it’s very crucial to know what is considered “equipment”, to understand equipment financing and leasing. In the matter of equipment financing, any asset, rather than building or property, used in the terms of a business considered as business equipment. For example, cranes for manufacturing firms, an oven for pizza restaurant, X-Ray machine for healthcare, as well as a large vehicle for Transport Company, all qualify as business equipment.

Most of the businesses give preference to equipment finance when they want to purchase expensive equipment for their business. Moreover, business owners select finance option while purchasing equipment, to free up money to invest in other areas of the business. Therefore, equipment finance is very helpful option for businesses.

 

There are main two options for equipment finance

1.     Equipment leasing

2.     Equipment financing

Here are some important factors that you need to consider about each type of financing.

Equipment Leasing

Leasing is alike to borrowing, but in a lease lender purchases the equipment and then leases it to you for a fixed monthly installment. Mostly equipment leases have a fixed interest rate and terms, however every leasing company offer different interest rates and loan terms. At the end of lease contract, you can own the equipment at market value, pre-decided amount.

 

How Does Leasing Work?

Equipment dealers provide equipment leasing independently (in-house) or through other leasing companies. This can smooth the application process of leasing equipment in Australia. 

A lease is not considered as a loan, so it does not include in your credit report as a loan. Nonetheless, similar a loan, standard lease terms have three, seven, or 10 years time. Moreover, you can mark your lease payment as a business expense.

Even though, there is no rule for what kind of equipment is best to lease vs. a purchase, there are various types of equipment that are best suited to lease instead of purchasing due to shorter usable life of the equipment.

High-tech computers

Software

Some medical equipment

The Pros and Cons of Leasing

Pros:

Leases are easier to qualify as compared to traditional term loan

Leases offer more flexible terms than an equipment loan

Some leases can also obtained without down payment

Your equipment dealer also provides you the exchange or upgrading equipment over a certain period of time.

Cons:

Sometimes, a lease can cost more than a traditional loan

You have to make payments till the end of contract even if your need for the equipment ends before.

Equipment Financing

Equipment Loans depend upon various sources as your credit worthiness and the nature of the equipment being purchased. These sources are:

Commercial banks

Credit unions

Online lenders

Equipment financers

Depending upon the cost and type of equipment being purchased, sometimes equipment loans can be smaller amounts as compared to a typical bank loan, which make traditional financing an alternative for small business borrowers.

Every individual lender has their own terms for equipment loans. Mostly terms for commercial loan repayments tend to reach out at 7 years with interest rates that will totally depending upon your credit profile, the lender, and the borrowed amount.

In case of credit union, you have to be a member to qualify for an equipment loan.

Online lenders also provide financing options that are suited to purchasing equipment, and same as traditional lenders, rates and terms will vary depending on individual lender. Even though, interest rates could be higher but a quick response is a hallmark of online lenders as they respond to a loan application with an hour.

While Loan terms are differs according to lenders, most of the traditional lenders will ask for a down payment. The interest on an equipment loan is tax deductible with most loans.