The Difference Between Equipment Financing and Leasing

When opening a new business, whether it's a restaurant or an office space, one of the most burdensome expenses is the equipment. Without equipment, you don't have a business, but for many people looking to open a business, the start-up cost is enough to scare them off the idea. Fortunately, there are a couple of options available to help you if you are in this situation—equipment financing and leasing.

Equipment Leasing

When you lease equipment, understand that you do not actually own the products. You will pay a set amount each month to a vendor, and at the end of your lease, you will return the equipment back to the vendor. This has its pros and cons:

Pros: 

• No down payment or collateral needed to lease 
• You are not responsible for repairs 
• Quick and easy application with minimal and flexible terms, perfect for people with poor credit  

Cons: 

• Prices add up over time, and you could end up paying more than the price of the equipment 
• Monthly payments are based on your credit rating, age, and revenue 
• Equipment that quickly degrades will be priced higher  

Equipment Financing

If you opt to finance your equipment, you are essentially taking out a loan with the vendor or a third party and will pay them a set amount each month until the equipment is paid off. This too has its own set of pros and cons, so weigh your options carefully:

Pros:

• Easier to qualify for than a standard business loan 
• Equipment with higher resale values come with lower interest rates 
• You eventually own the equipment outright, making it a better option for long-term businesses  

Cons:

• May require a down payment to qualify for a loan 
• If you cannot make your payments, the financiers will seize your equipment as collateral 
• If the equipment becomes obsolete or damaged, it is your responsibility to make repairs or change it out  

With any business decision, the choice comes down to your own personal situation and needs. For help figuring out what would be best for your business, contact our professionals at Evolt Capital.