A loan to buy equipment is much like any other business loan. There is a chance you may be asked to put down a certain percent of the total cost of the equipment. Further, you’ll undergo the normal loan underwriting process, and will likely be asked for information like your credit score and financials.
Payments will be in line to traditional loan payments, too. Keep in mind that an equipment loan doesn’t necessarily take the individual piece of equipment into account. Should the individual piece equipment become obsolete, for example, the loan is not affected. In a worst-case scenario, you could end up paying off a loan for a piece of equipment that no longer functions as you need it.
The title to the equipment will be released to you once the loan is paid off.
A lease, on the other hand, generally requires no money down, no collateral, and no lien. It can be quite a bit easier to apply for a lease than a loan, too. Depending on the value of the equipment, you may be able to get approved for a lease in as little as 24 hours. Most lease agreements include an option to purchase the piece of equipment after the terms of the lease is over. This generally means paying off the difference of the lease price and the value of the equipment or some other predetermined amount agreed to by both parties at the commencement of the lease. During the lease, you do not own the equipment. But if you choose to buy the IT equipment at the end of the lease period, the title to the equipment is released to you at that time.
With a lease, you don’t have to agree to purchase the equipment. In fact, should the equipment become obsolete, you have the option to return it at the end of the lease rather than purchasing it.
Finance or Lease: Which is right for your business?
If you have money to put down and the piece of equipment you intend to finance will last your business a long time, then finance may be the way to go.
But if you have little money to put down and/or the piece of equipment you intend to finance can quickly become obsolete, then you may want to consider leasing.
Keep in mind that both equipment financing. and equipment leasing can offer tax incentives. Speak with your accounting professional if you have questions about which option is right for you from a tax perspective.
Ultimately, it’s up to you to make the right decision for your company.