Heavy equipment and machinery are core components to the construction industry. Beyond that, for any company to thrive and stay relevant, they need the latest cutting-edge equipment. The problem with that is not every business owner will have the cash on hand to buy that equipment outright.
Cash flow is one of the primary roadblocks and it makes sense given the nature of billing cycles and payments. As a result, owners are all but familiar with financing options and managing money through these methods. That familiarity should also be applied when looking to acquire the latest equipment.
For those with the savvy, the decision isn’t just to finance the equipment and be done with it. Rather, it’s to determine whether equipment leasing or financing is the best option.
Today, businesses at a minimum should be aware of these options and how to determine which one is ideal in their situation. To determine the option that makes the most sense, here is a helpful guide to determine the right path.
Before delving into the pros and cons, it’s important to know the differences between these two:
The big difference between these two methods ultimately comes down to ownership of the equipment. In leasing, companies don’t own the equipment outright unless they buy it at the end of the lease. In financing, companies own the entirety of the equipment once the loan is paid off.
The ownership plays a significant factor in the advantages and disadvantages of both methods. However, there are some other nuances to them. For example, when dealing with a leasing company for equipment, it’s fair to say the equipment they’re offering is recent. Furthermore, when getting a lease, the duration of the lease isn’t going to outlast the equipment’s useful life.
In other words, business owners won’t have to worry about getting old or outdated equipment nor will they be forced to be left with it afterwards.
The other thing to note is leasing companies are keeping up with current equipment so business owners could enjoy equipment that would otherwise be out of their price range if they went down the financing route.
Some other distinct advantages are:
Naturally there are some disadvantages to note as well. The biggest ones are:
For durable, long-term equipment, equipment financing is the ideal option. Once approved, lenders cover between 80% to 100% of the entire cost of the equipment. The duration of the loan is set to the useful life of the equipment purchased.
Equipment financing typically has an easier qualification process too. Even with not the strongest credit history, equipment lenders are happy to consider offering loans. Although the better the credit history, the better the perks (i.e. lower interest payments). The other reason the process is easier is because often the equipment is used as collateral, which lowers the risk on the lender’s side if the payments on the loan aren’t being made.
Some other distinct advantages are:
The biggest disadvantage to equipment financing is the upfront costs. All equipment leases require some initial down payment which can present cash flow issues short-term.
Also, depending on the type of equipment that’s being bought, the equipment could become obsolete in a few years. This is why it’s advised to use this only for equipment that will be relevant for at least five years or more.
Get started leasing or financing the equipment you need. Contact Yellowhead Equipment Finance today to get started. We’ll help you identify your eligibility, work with you to understand your options, and work with appropriate lenders to get the best solutions for your financing needs.