What makes sense for your company: equipment lease vs. equipment loan

If you are looking for a way to grow your business and equip it to compete in new markets, investing in new machinery and equipment could be the answer. However, upgrading your old machines or buying new equipment outright can be hard on your company’s finances. 

By replacing your machinery, you can significantly affect your working capital and stretch your finances. That’s why a lot of companies instead turn to heavy equipment financing to fund their new machine purchases and ventures. 

In fact, 79 percent of U.S. companies use some sort of financing in the form of loans, leases and other lines of credit when acquiring new equipment! So then the question becomes, what form of heavy equipment financing is right for your company? 

Equipment lease 

Many companies do not have it within their budget to buy a brand new piece of equipment and turn to heavy equipment financing like equipment leases. With equipment leasing, your company does not buy a piece of equipment so much as someone else will buy the equipment and then rent it out to you for a monthly payment. This lease is only for a certain time period, and at the end of it, companies have the option of either renewing the lease, terminating it or even purchasing it outright for its fair market value. 

When it comes to equipment leasing, companies generally have two options to choose from, an operating lease or capital leases. Operating leases generally have lower monthly payments and shorter-term in nature. Capital leases are usually for pieces of equipment that the company generally will want to acquire and use for the long term. Besides these two options, there are a bunch of hybrid lease models that can be worked out and offered to companies as well. 

Equipment loan

Another heavy equipment financing option that businesses can turn to is an equipment loan. An equipment loan is funding that is designed to help owners pay for a piece of equipment they need over time. Companies will receive a loan that covers 80-100 percent of the upfront costs that they repay overtime in their monthly payments. Once the loan is paid off, the company fully owns the equipment piece!

Deciding between the two 

One really big thing to consider when weighing your options between an equipment loan and an equipment lease is how quickly the machinery will be out-of-date. If you are in an industry where you are constantly needing to upgrade your equipment in order to be technologically competitive, then a short-term lease may suit your needs better than a loan. However, if the piece of equipment is something that your company plans on using or needing for a long time, then equipment financing like a loan would be better for you! 

Another thing to consider is your company’s cash flow situation. If you have the money for a down payment and intend to use the equipment for a long time, then go with the equipment loan! If finances are stretched too thin, or you are wanting to finance multiple pieces of equipment, then a lease could be right for you.

No matter which route you choose to take, keep in mind all the reasons why now is the right time to get equipment financing for your company

Let’s talk 

If you are having a tough time deciding between all your heavy equipment financing options, we can help. We can talk through your business needs and discover the right path for you. Equify Financial is a nationwide company that is there for your business every step of the way, contact us.

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