Should You Lease or Loan Equipment?

If you work in an industry that relies heavily on specialized, expensive equipment, then you’ve likely encountered the issue of equipment financing. When is it better to lease equipment versus taking out loans or owning it outright?

For example, in the hospital industry, hospitals are constantly weighing the risk factors of getting new equipment. Depending on set budgets, cash flow, and other factors, some of these outright equipment purchases just aren’t even possible.

This is where flexible equipment financing comes in. Multiple financing options are available to give companies immediate access to new, helpful equipment.

What Type of Equipment Should Be Considered For Financing?

Before we get into financing options, it’s important to define the type of equipment that this financing applies to.  Equipment used by companies to produce products and services is commonly known as capital equipment. Usually, this type of equipment costs $5k or more and lasts for more than one year. Some other checks to run by your equipment to make sure it fits the bill for equipment financing include:

  • It has a long lifespan and is not disposable.
  • Costs more than $5,000 when factoring in shipping costs, installation costs, and taxes.
  • Is not a smaller piece of a larger equipment setup. It stands on its own.
  • Has a value that can be appraised. Considered an asset/personal property.

In some instances, even software can be considered a capital equipment cost. As long as it costs more than $5k, it can be included in this list.

Should You Lease or Loan?

When it doesn’t make sense to purchase something outright, your next best options are to either lease or loan the equipment. Sometimes, even if you have the cash, it still makes more financial sense to lease or loan.

When it comes to loaning, there are many options available. You can find lots of lenders and banks that have a multitude of lending options to choose from. You can pick between terms and processing is typically pretty fast. Your down payment on the loans is usually pretty low and payments tend to be affordable and spread out over the life of the equipment. The major benefit to a loan is that once the loan is paid off, as long as the unit outperforms its life cycle, you then own it and can operate it for longer.

Leasing is nearly the same as renting the equipment. The fees are typically lower than loans, but you don’t ever own the equipment outright. As far as which one you choose, it depends on your own business’s cash flow and financial goals.