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If you don’t know much about equipment leasing and curious to explore this term in detail, then you have come to the right page. Here, you will get to know everything about it.
From a virtual perspective, every successful business owner reaches the stage where new equipment from computers to vehicles becomes vital. What if you don’t have enough capital to pay for those vital items? No doubt, there is one solution available and it is financing the equipment using a business loan, but this one can require a down payment along with higher monthly payments.
However, there is also one famous solution available for businesses in such sceneries and it is equipment leasing. This solution can help you with capital problems secure the equipment you need to stay relevant and completive. Even though the company has a lot of cash, this solution still is the ultimate option. Let’s understand its basics in more detail –
Equipment leasing enables the business to rent the equipment they need for a particular period of time, rather than purchasing it or seeking financing option for it. Businesses do monthly payments for specified months. Once the lease completes, they can consider renewing their lease, purchase the equipment or just end their lease and return back the equipment.
Explore Equipment Leasing Types
No doubt, this solution can be a great advantage to your small business. However, you need to choose the right type of lease for your business. This solution has two main types – capital lease and fair market value lease/operating lease –
- Capital Lease –
It is an equipment lease where you can place the leased equipment on your balance sheet. Here, the monthly payments may be higher with capital leases, just like an equipment loan. With this type of solution, you are probably to purchase the equipment at the end of your lease terms.
- Operating Lease –
It is an equipment lease where you don’t get the ownership benefits. However, monthly payments may be lower. This type of solution works well with equipment such as computers or those that require to be upgraded quite often. Here, you are probably to return back the equipment or you opt to renew the lease at the end of your term.
When selecting between these two types, consider your final goals. If your aim is to maintain low monthly payments, then prefer operating lease. If your aim is to purchase the equipment down the line, then prefer capital lease.
However, when it comes to purchasing or leasing equipment for your business, there is no right or wrong answer. In fact, there is the only right or wrong situation. If you think equipment leasing is the best solution for your current situation, then you should go for it.