A purchase isn’t the only option besides equipment lease. In fact, it’s not a typical choice, at all. Credit lines, loans, and financing services are three of the most popular methods of funding an equipment acquisition.
Similar to a purchase, loans provide more “ownership” features of the device. With a lease, on the other hand, the lessor holds the title to any equipment and will only provide you the option to buy it when the lease contract ends. With regards to financing, the option enables you to keep the title to the leased products, protecting you for the sake of acquiring it.
With all of these, it is very important to take note that a loan puts more emphasis on your company’s credit report. Without a doubt, this could make it tough for small, start-up businesses to obtain an approved application. For this reason, loans are mostly used by established businesses with outstanding credits- a factor that qualifies them to get the best available terms.
Unfortunately, terms are one of the most notable drawbacks of going with a loan. Unlike the leasing option which supplies a fixed-rate funding, a credit line or loan could vary throughout the tenure of the term. When this is the case, budgeting may become troublesome, especially if the loan involves a large amount. Aside from these facts, loan providers like banks commonly need a much larger deposit that most of the time talks about 20% of the total equipment expense.
Besides loans, financing is a great alternative to buying costly devices and is commonly quicker than the process of going with a loan application process. By leveraging your receivables, you could turn exceptional payments into revenue rapidly by offering these expenses to a separate entity. Paying up to 90% of the entire value of your balance or dues (depending on the creditworthiness of your customers), financing is an ideal option when leasing, especially for small, start-up companies.
Normally, financing is approved in just a matter of days. This makes the option a popular resource for small operations like the transport market and those businesses that deal with contracts that have a quick turn-around.
Are the financing terms versatile?
Leases are typically deemed the most flexible financing alternatives, especially when compared with loans. Depending on the specific structure of the lease’s term, you could choose to start with low payment rates and increase slowly as time goes by. Defer payment if you want to give yourself an extra window before the first payment schedule is due, and add extra devices to the existing lease under the “master lease” term structure.
Who makes the most of the tax incentive?
Under a loan structure, a company has the ability to declare depreciation. However, you will have to provide a deposit and be accountable for a higher interest rate. Under a lease contract, the lessor can claim depreciation. In exchange of this, they provide a lower APR rate that is typically half of what a loan can provide. If the depreciation credit is important to you and you still want to lease, you can inquire about the availability of financing or capital leases.