Similar to renting something, small business equipment leasing allows companies to acquire equipment they need without paying full price up front. The advantages to an equipment lease cannot be stressed enough, and there are many reasons companies prefer leasing to buying outright.
Usually the difference between a big business leasing and a small one leasing is the amount of equipment and cost. There can also be some differences between how much interest is owed. A company that is successful and well established is often going to get a lower interest rate than a small business. One is more risky to lease to, while the other has a track record of success.
So how does one secure an equipment lease? And what are the most important things to know about this topic?
Let’s get right into this.
Small Business Equipment Leasing Basics
Why would a company want to lease instead of buying a company? There are a few reasons:
- The company doesn’t want the liability of equipment being damaged, renting reduced that risk.
- A company might not have the funds to purchase the equipment they need.
- A company may only want to use equipment for a short time and then return it.
- Some kinds of equipment are frequently updated, meaning it doesn’t make sense to buy something that will be outmoded too quickly.
Other Reasons A Small Business Will Use Equipment Leasing
- The approval process is fairly simple. So it isn’t usually difficult to get equipment leased.
- The monthly payments can be reasonable depending on the scope of the lease.
- Capital is preserved.
- Maintains borrowing ability.
- A lease can improve cash flow if the equipment needed is to increase sales.
- These kinds of lease expenses can be written off when filing taxes. Negating the cost entirely.
- There can be less documentation needed.
Anything that is considered necessary equipment for an industry can be leased. This includes:
- Heavy lifting gear.
- Hardware for transactional processing.
- Medical hardware.
- Office equipment. (Like phones, computers, etc)
- Furniture for office spaces. (Must be for commercial use)
- Tools for machining.
- Software for business use. (Managerial, operations, etc)
- Retail related. (Restaurants, hotels, etc)
- Farming equipment.
- Transportation industry related.
Some limitations to equipment leasing include smaller items like nails or screws. Anything that isn’t deemed “essential” is often more unlikely to be leased.
Technical Things To Remember & Best Ways To Get Equipment Leasing
Interest rate quotes will vary with each company. Both the broker and the lender will quote different things, but they’ll generally be alike.
A lender and a broker are usually involved with the leasing process. The rates they quote are usually going to be the same. However, there are some reasons why the rate may fluctuate more or less:
- What is your credit score? If it is poor, this can impact your interest rates.
- How long has your business been running? This is important if a small business looks to lease equipment. If the business hasn’t been around for at least 2 years, this will often impact your eligibility.
- Some things are much hard to finance. (We’ll cover these more difficult items shortly)
- Not every lender and broker is the same. Finding the right ones will determine how quickly and smoothly the leasing process will be.
As long as you remember to communicate your needs and be involved with the leasing process, you will generally get the equipment you need.
Here are the fastest ways to get equipment leasing:
- Use a broker. A broker has contacts for specific lending types and they can negotiate for you.
- Do online research about different companies for equipment leasing.
- See if you already have lenders or contacts you’ve worked with before.
What Equipment Is Harder To Lease?
Although most industries will be easy to lease equipment to, a few industries remain a higher risk investment in the eyes of lenders. Some of these higher risk industries include:
- Cannabis (Drug related)
- Anything retail or restaurant related. (As of 2020, the retail industry became higher risk to lenders)
Because there is a measure of trust between a lessor and the lessee, many factors are taken into consideration to determine whether something can be leased.
This process has become convoluted with technical considerations and financial information, which can take time to process. This is one of the primary reasons that a company will use a broker/brokerage to expedite the process.
Why Use A Broker/Brokerage?
Here are a few problems that businesses encounter when trying to lease equipment they need.
- The lenders they reach out to can’t help them.
- It takes too much time to compare different lenders to get the best lease terms.
- The application process can be lengthy for each company.
A broker will reduce the time it takes to apply for lenders, research the best options, and negotiate terms. Brokers represent their client to close the deals.
Most brokers already have a list of contacts and lenders, so they will usually have a perfect fit for your company from day one. Unless their clients can’t help you, they may have to research new sources for leasing. A broker doing this instead of you will save time and money.
How Valuable Is The Equipment Leasing Industry?
Reports suggest that the equipment lending industry is in the trillions. The number of businesses continuing to use equipment leasing is growing. Companies have relied on equipment leasing even during 2020. This industry is estimated to grow in projected worth in the following years too.
Because of how pivotal this kind of industry is, practically every kind of business uses it. (E-commerce businesses are a regular exception)
Essential industry equipment is being leased or purchased. (Or both)
Because companies need specific equipment to function, the equipment leasing industry will thrive even in a bad market.
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