Industrial Equipment Leasing: Pluses And Minuses

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Industrial Equipment Leasing

Throughout the course of your business operations, the need to scale and expand will become a necessary step in sustaining your enterprise. But because certain purchases – like industrial equipment – won’t be cheap, you might have to look into other options in order to acquire what you need without having to pay cash.

 

While financing is a possibility, many of us often overlook the possibilities of industrial equipment leasing. As a flexible option, an equipment lease can be a great choice for business owners with unique needs and preferences.

 

How is Leasing Different from Financing?

 

Financing equipment for your business essentially means borrowing the funds from a lender to purchase the equipment in full, and then paying off the borrowed amount in equally divided payments over the course of a few months of years. At the end of the loan term, you’ve fully paid off the amount and the equipment title will be passed from your lender to you.

 

An equipment lease pertains to the process of borrowing the equipment from the individual or entity that owns it. The lease contract entails monthly payments issued by the borrower in payment for the use of the equipment. In essence, an equipment lease is similar to a property rental. You don’t own the equipment at any point of the contract.

 

What are the Benefits of Equipment Lease?

 

Most people think that equipment lease contracts are an instant loss because you don’t own anything throughout the length of the contract despite making monthly payments. But there are unique benefits that make it a practical choice for those seeking to acquire new equipment.

 

  1. Lower Monthly Payments – In any case, an equipment lease should not cost you more than the value of the equipment at the end of the lease contract. Because if it did, then equipment owners would lose their market since borrowers would be better off financing their equipment instead. Because You’re not buying the equipment, so it would be counterintuitive to pay a sum amount that covers the entire cost of the equipment in question. For that reason, equipment lease options can be far easier on the pocket, enabling you to take control of your cash flow more efficiently since you’re not spending so much on the lease.

 

  1. Upgrade When Necessary – Certain types of equipment can become obsolete over a short period of time. If you purchased that specific piece and found that new technology has arisen to replace it, then the predicament of liquidating and acquiring new equipment would be inevitable. With an equipment lease, that’s not something you’ll have to worry about. At the end of the lease contract, you can let go of the equipment and lease out a piece that uses the latest trends and upgrades.

 

  1. Easier Application Process – Unlike loans that consider your eligibility, equipment lease contracts are far less strict when it comes to your credentials. Applying for a lease is fairly easy, requires very few documents, and follows a fast approval process.

 

  1. An Attractive Balance Sheet – If you’re thinking of securing a loan later on, then an equipment lease might be beneficial. The monthly payments you make will reflect on your balance sheet as an operating expense rather than a long-term debt which may improve your eligibility for a loan.

 

Equipment Lease Risks

 

What Are the Potential Risks?

 

The equipment lease set-up isn’t a perfect format for all businesses. As a business owner, it’s important to realize that equipment lease contracts may have certain drawbacks that may impact your business operations. An awareness of these risks can help you picture out the future to formulate contingency plans should they arise.

 

  1. You Won’t Own the Equipment – At the end of the lease contract, you won’t own the equipment. That’s why some business owners choose to simply buck up and incur more expensive monthly payments in favor of financing. Of course, the flexibility of a lease contract gives you the option to purchase the equipment after the term, but that also entails paying a percentage of the equipment’s actual cost.

 

  1. You Have to Renew Your Lease at the End of Each Term – If the equipment you’re leasing is an essential part of your business operations, then you will have to keep renting it out for the foreseeable future.

 

While a single lease contract will ensure that you don’t end up paying more than the value of the equipment itself, repeating the contract all over again might actually cause you to end up paying significantly more than the equipment’s market value.

 

If you intend to renew your contract time and time again, you might end up paying significantly more as the years go by. Consider your own spending capacity and whether it would be better to secure the equipment with financing instead to save yourself from having to pay monthly leasing costs for several years down the line.

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Khadija Bilal

Khadija holds a bachelor's degree in business administration. She is a professional writer with 7+ years' experience in the industry. Khadija has a small family and loves spending time with them.

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