What You Should Know About Equipment Leasing

What You Should Know About Equipment Leasing

As a business owner, you may find that you need to purchase new equipment at specific periods in your business lifecycle. For example, as a startup, you needed to get equipment for your entire company, including computers, manufacturing machinery, or equipment you use to provide services. Unfortunately, the initial outlay can be costly when you need to make these purchases, but what if you lease your equipment? These are some things you should know about equipment leasing.

What Is an Operating Lease?

If you need some equipment for a short period of time, you may pursue an operating lease. As the lessee, you have the right to cancel your lease at any time during the lease period, but you typically have to give notice

If you find yourself in an open-ended lease, you may have to pay for any value the equipment loses while you have it. Equipment that is on the brink of technological breakthroughs or quickly becomes obsolete can be risky to lease. Closed-ended leases require that you do the machinery maintenance, but you can return it without further obligation when your lease ends.

What Is a Capital Lease?

A long-term equipment lease is called a capital lease. These financial tools offer you long-term access to the equipment your business needs without having to pay for the piece of equipment in full. Instead, you rent it for a specified period of time.

The equipment may include forklifts for your warehouse, production machinery or computer equipment. At the end of your lease, you can lease an upgraded piece of machinery. In addition, you may be responsible for equipment maintenance and insurance.

However, you, as the lessee, cannot typically cancel a capital lease, so when you sign the papers, you are responsible for paying the payments until the lease ends.

What Is the Leasing Process?

Just like renting a building, when you lease equipment, you will pay a fee to use this machinery for a period of time. You can lease almost any type of equipment or machinery. In addition, you can set your lease for any period of time you desire. When you conclude your lease, you may also lease new equipment, purchase the equipment you are leasing or purchase new equipment.

Equipment leasing requires credit approval, and you may have to pay fees, including origination and tax fees, and you will probably have to carry insurance on the leased property. However, your leasing rate will be lower than a payment, at 8.5-20% of the machinery value for a lease that lasts two to five years.

If you need new equipment and cannot afford to pay for it outright or don’t have high enough credit to finance your purchase, look into leasing and how it can benefit you.