Setting up a new business or growing an existing business? If you are, you are likely to need equipment. Office equipment. Technology, like computers and software. Industrial equipment. Construction equipment. Vehicles, potentially.
Much of this equipment is expensive, and chances are, if you are small business, you have a limited budget. Which is why now is a great time to chat aboutwith an .
But first, what is?
Equipment finance means you don’t need to cough up the full cost of equipment upfront. The lender either loans you the money, so you can buy what you need. Or you rent the equipment from the lender.
Different equipment finance options
There are two different forms of equipment finance: an equipment loan and an equipment lease. So what’s the difference?
An equipment loan means you borrow money from the lender to purchase equipment. You pay the money back with interest over the period of the loan. An equipment loan allows you to own the equipment outright. You will need a deposit to secure an equipment loan.
An equipment lease allows you to essentially rent equipment from the lender. The lender purchases the equipment, and you pay the lender instalments over the agreed period. The equipment is not in your ownership over the course of the lease. But at the end of the agreement, you have the option to purchase equipment at a fair price. Or you might decide to upgrade equipment, and continue with the lease. You don’t need a deposit to secure a lease.
Which option suits you best?
How do you decide if you need an equipment loan or an equipment lease? It depends a bit on the scale of your business, and the type of equipment you need.
If you need to purchase equipment which becomes redundant after a short time, and needs updating or replacing, then an equipment lease might suit you better. For example, you might need computers for your office, which will need to be upgraded within three years. You pay the lender instalments over the agreed period, and then at the end of the lease, you can arrange a new lease for new equipment.
If, on the other hand, you are purchasing equipment that stands the test of time and retains its value, an equipment loan may be a good option. For example, you may be purchasing a piece of machinery, which lasts many years. If you no longer need equipment, you can sell it on. Bear in mind that you will need a deposit to secure the loan. Deposits tend to be around 20 percent.
Both equipment loans and equipment leases will require collateral. This may be the equipment itself. But the lender may also need to use other assets as collateral. In both cases, you will be paying regular instalments.
Over time, an equipment loan and an equipment lease will work out costing about the same. So weigh up pros and cons for each option, and talk to your tax accountant about whether leasing or loaning equipment is best from a tax perspective. When you are ready to make a decision, book a chat with your qualified Smartline Adviser to discuss available options.