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Equipment Financing: The Difference Between Loans & Leases

For small business owners in Vero Beach, Ft. Pierce, Port Saint Lucie, Stuart and the surrounding area, having the option to acquire hard assets using a loan or a lease comes in handy on different scenarios. Equipment financing is most useful at times when small business owners cannot afford to shell out a huge amount of cash for new equipment purchases, and it also gives business owners the flexibility to not touch their current budget for much-needed equipment replacements.

In equipment financing, there are two methods that business owners can choose from – loaning and leasing. While both are great ways to give businesses the necessary equipment they need, there are a couple of notable differences between the two.

Equipment Loaning

This method lets you borrow the exact amount you need to purchase equipment for your workplace, with a down payment usually required before you can loan money. You will have to pay back the total money you borrowed at a specific time period, which depends on the payment plan arranged with the lending institution.

Lending companies typically put the equipment itself as collateral for the amount you borrow, which means that they can simply just repossess all of the loaned equipment away in the event that payments have been missed. Because the loan is secured by the equipment, it’s very easy for any type of business to qualify, considering that the background and success of the business won’t matter that much during the application process.

However, the only downside to this method is that the total cost you will be required to pay will be much more than if you have just purchased the equipment straight up, just like how a regular loan works. But the best thing about it is it allows business owners to acquire the equipment they need to make their workplaces operational, especially if they can’t afford to pay the total amount outright.

Equipment Leasing

This method allows you to lease the equipment you need for your workplace. In an equipment lease, you will have to pay a flat monthly fee for the equipment and the lessor will remain as the owner of the equipment. The duration of your lease depends on the lease term provided by the leasing company. Once the term ends, you can either return the equipment back or purchase it for its fair market value.

An equipment lease is the best option for businesses that regularly require equipment upgrades in the workplace, because it gives them flexibility financially and eliminates the costly need to purchase the latest model whenever one comes out. It is also great for business owners who cannot afford to pay the down payment for a loan. These are the two reasons why an equipment lease, despite having an unappealing concept, is popular amongst businesses of any size.

The downside to equipment leases is that you won’t own the equipment once the term ends. Also, it typically has a larger interest rate than loans, making it more expensive in the long run.

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