When you need to purchase equipment for your business, you may not have enough capital to cover the cost. In this case, you have a decision to make: Do you pursue an equipment lease or equipment financing? The main difference between these two options is ownership. If you want to buy the equipment and you’re willing to provide collateral, you can get an equipment finance loan. If you do this, you’ll own the equipment once you’ve paid it off. On the other hand, if you are not worried about owning the equipment, you may wish to lease it. 

What Qualifies as Considered Equipment?

A great variety of things can be considered equipment. For example, company cars, HVAC units, and kitchen appliances are all equipment. So are computers and office fixtures and furniture. If you are in need of these things, think about an equipment lease or financing. The financing route will get you a business loan. An equipment lease is more like a rental agreement.

What Is Equipment Financing?

There are pros and cons to the equipment finance route. If you choose this path, the lender will give you the capital for buying equipment. They may loan you all of the total value or just most of it. Over time, you will pay on the loan and also pay interest. Some of the pros to equipment financing are the low cost, the fact that you don’t need collateral, and the fact that it’s pretty easy to qualify for. However, there are a couple of cons as well. You’ll be stuck with your equipment at the end of the loan. By the time you pay it off, it may be outdated, and you’ll need to replace it. Also, the lender probably won’t give you the entire cost of the equipment. They’ll probably give you about 80%. This means that you’ll have to provide a down payment.

What Is an Equipment Lease?

There are two types of equipment leasing: capital leases and operating leases. Capital leases are similar to a loan. They have higher payments each month than operating leases. When the lease ends, you can purchase the equipment for a small price. On the other hand, an operating lease has lower monthly payments. At the end of the term, you could own the equipment by paying its current market value.

When making this big decision of equipment financing versus equipment leasing, think about whether your equipment will be outdated by the time your term ends. Also, think about how much cash you have at the moment. Consider your options carefully and make the decision that is best for you and your business.