(Last Updated On: April 12, 2023)

Equipment funding can prepare your company for success by maintaining operating money in your control. payment cash for a piece of equipment necessitates payment in full before the machinery is useful and able to add to your income. There are many methods to avoid making a big monetary expenditure, including funding equipment with credit, renting equipment with a contract, or creating a bespoke financing option.

You can acquire the tools you need to run your company and manage your cash flow with the help of equipment financing. And it’s becoming more common; according to the Equipment Leasing and Finance Association, the equipment finance business saw new traffic rise over 7% in 2021, making this $900 billion market an important one.  

Financing is used by companies across all industries and service sectors, but the top five most funded machinery categories are: transit; Information Technology and technology services; building; farm; and industrial/manufacturing.   

If you are still confused about which one is right for you, seek advice from Fundshop.

To borrow, or to lease?

Depending on your circumstances, a loan or lease on the necessary machinery could be the best option. 

These agreements help firms of all kinds, from Fortune 500 to mom-and-pop.

Both loans and rentals enable you to access machinery instantly, allowing you to produce revenue—while you begin making modest, frequent payments.  

If you have a large down payment and plan to keep the tools, a loan is best. If you don’t have money, the equipment is only needed for one job, or it may become outdated, a contract is best.

Below are some things to consider.  

Equipment loan (line of credit) 

Small business equipment loans are Ideal for things like inventory, business improvements, and capital expenditures, as well as the equipment you intend to keep for the foreseeable future. 

Financial institutions give out loans, and the money borrowed is paid back with interest. An equipment loan usually requires a down payment. Finally, the equipment is yours.

Pros:  

• Collateralized loans are made on the basis of the fixed assets of a company.
• Immediate tax deduction.  
• Allows for more accurate budgeting.
• The use of security results in a more lenient credit decision. 
• Simpler to obtain than a traditional bank loan. 

Purchasing goods, expanding a company, investing in large machines, and investing in electrical tools are all typical industry uses.

Equipment leasing 

Useful for: Project-specific tools that you won’t need long-term but may need in the short term; Obsolete products or technologies; tools you need to use but have the choice to buy and any machinery or tools you plan to use for no more than three years. 

Payment: This may allow for 100% financing with no down payment. Monthly installments are tailored to your requirements. The contract funds the equipment’s worth, which declines over time. 

Pros:  

• The rented machinery is used as security for the loan.
• Maintenance, support, installation, and similar activities can be packaged together. 
• Equipment handling, shipping, upkeep, and removal can be handled by lender.
• A master lease can encompass numerous sublease agreements, which is useful for expanding businesses. 

Machinery, information technology (IT) products and services, healthcare technologies, medicinal devices, and security systems are all typical industry uses

Which Is Better for Your Company? Leasing or Financing Equipment?

Don’t fret if you can’t buy that new kit right now. Instrument contracts versus debt are the key.

To help you decide, consider these two factors: how much money you have access to right now; and how fast the tools you’re viewing will become obsolete.

Equipment financing could be a good option if you have a sizable down payment, your company will benefit from the machinery for the long term, and you have good credit. If you have a low credit score, no down payment, or want to buy obsolete equipment, equipment rental may be an option.

Remember that buying and renting tools may have cash rewards. If you’re confused about your tax options, contact an expert, like Fundshop.