Options for getting the equipment your business needs fall into two main categories: equipment financing and equipment leasing. Financing is the same thing as applying for a loan to purchase equipment. Leasing, on the other hand, is about making monthly payments to use the equipment. Which option is right for your business goals?
What Type of Equipment Financing Is Best?
For equipment loans, you have many options. As long as your business qualifies, you can basically customize the terms of the loan to your liking. This includes having higher or lower down payments (even 0% down), excellent interest rates, generous terms, and a variety of monthly payment options.
When Is Leasing Smart?
Equipment leasing has several advantages over loans, and a few disadvantages as well. On the positive side, it tends to have lower monthly payments. That’s a big advantage for businesses trying to keep overhead as low as possible every month.
For example, startups and small businesses may need to carefully balance equipment costs with inventory purchases, marketing costs, payroll, taxes, and many other needs. Having a lease costs more in the long run because of higher interest, but it may be the best choice because the monthly payments are so low.
A final benefit of leasing, among many other positives, is that you can upgrade frequently. Most leases have terms of 24–36 months. At the end of the lease, you can choose to start a new lease with a different piece of equipment. In other words, every 2–3 years, your company can get a brand-new piece of equipment. With computer systems and other items that are rapidly replaced by newer models, this is a big benefit for staying up to date.
How Easy Is It To Qualify?
Before you ask, yes, small businesses and startups can qualify for equipment leases relatively easily. Even companies with past credit issues can get approved, though the interest rates will be higher than normal.
What Options Are Available for Finalizing a Lease?
There are actually several types of lease terms: the 10% option lease, the $1 buyout lease, and fair market value leases. FMV leases are very common, especially when you plan on returning the equipment at the end of the lease.
The $1 buyout and 10% option leases are more like a loan in the skin of a lease. You get the benefits of lower monthly payments but pay more than a loan. These are good options for businesses that want to own equipment but can’t qualify for a long-term loan. Contact BluWav Capital for your business financing needs!
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