If you need equipment for your business, it may be hard to decide whether to lease or finance the equipment. Knowing the difference between the two can help you decide which decision is best for you.
When you lease equipment, you do not own it. Instead, you are paying a vendor to use the equipment on terms agreed to by both parties. The two main types of leases are operating leases and capital leases. Operating leases have low monthly payments, giving the business owner the chance to own the equipment at the end of the lease. Capital leases have higher monthly payments and structures more like a loan. Leasing is a good option for equipment used infrequently or equipment that needs to be replaced or upgraded regularly.
Equipment financing allows you to own the equipment through a loan. The lender gives you the capital to purchase the equipment, and the loan is then repaid according to the terms of the financing agreement. Once the repayment is complete, the business owns the equipment outright and does not have to continue paying to use the equipment. This is a good option for equipment used frequently or equipment that does not need to be replaced or upgraded very often.
There are a lot of factors that go into deciding between leasing or financing. If your company will use the equipment often and not need to replace or upgrade frequently, financing may be a good option. However, if the equipment would need to be upgraded periodically or it would be used infrequently by your company, leasing may be a better option.
Once you understand the difference between leasing and financing, you can weigh the options more fully for your equipment needs. Analyzing the numerous factors involved in the decision will guide you so that you can decide the best path for getting the equipment your business needs to achieve the goals you’ve set.