Equipment lease financing isn’t for everyone, but it’s a great option for almost every business. The exceptions are rare, yet we encounter people every day who believe equipment leasing isn’t for them. Are you one of those people?
If you need financing for the equipment your business needs, read this first. Be sure you explore all the possibilities. Your options may surprise you!
10 False Reasons Equipment Lease Financing is Not an Option
Here are the top 10 objections and misconceptions about equipment leasing we encounter regularly. If any of these sound familiar to you, maybe we can ease your mind.
1. The equipment I need can’t be leased.
If your business needs it, we can lease it. Typically, anything with a serial number can be leased – computer equipment, agricultural equipment, landscaping equipment, construction equipment, manufacturing equipment, veterinarian equipment, medical equipment, dental equipment, scientific equipment. The list goes on.
If your business needs equipment, we really can provide lease financing for it.
2. I prefer cash to avoid interest and financing costs.
Cash is free, right? Why pay for financing when you can pay “out of pocket”? The answer: Cash flow.
Cash flow is critical and can make the difference between business success and failure. A lack of cash flow is one of the top 3 reasons businesses fail, and at any point in time, 61% of businesses struggle with cash flow issues.
More than half of businesses with money challenges blame slow payment from their customers. When this happens, having cash in the bank allows you to keep paying your staff, invest in marketing, seize a new opportunity, or weather a downturn. Additionally, when talking to your bank, you’ll find that they’re usually more interested in how much money you have in your account rather than how much equipment you own.
Cash is a limited asset and there may be better ways to use it than tying it up in a depreciating asset.
3. Leasing is only useful if I can’t afford the equipment.
Even if you have the money to pay for the equipment up front, keep your money in the bank for cash flow. Essentially, your leased equipment pays for itself while you use it. Spread the cost out with monthly payments over time and stay within your monthly operating budget.
Lease payments are usually a tax deduction, and if you’re making money, you want to maximise your tax advantages, improving cash flow.
Few of us like the idea of owing money. However, there’s good debt and bad debt. It’s good to build the credit history for your company. This way, when the time comes that you need a bigger piece of equipment, you’ll have an established credit history. Also, you’re purchasing a piece of equipment that’s going to help your business make money, not spending on something with no lasting value.
4. The equipment I need doesn’t cost enough to get a lease.
Equipment lease financing is suitable for any amount over $5,000, depending on the needs of your company. That may seem like a comparatively small amount, but it’s no small thing to have $5,000 sitting in your bank account for cash flow! Keep that cash in the bank and lease instead.
5. Our line of credit has a low interest rate, so why not use that?
A line of credit is usually secured on a personal level and is actually a “demand loan”. This entitles the bank to reduce or revoke the loan at any time, jeopardizing your ownership of the equipment. Interest rates are subject to change on your line of credit, but lease rates are fixed over the entire lease term, which simplifies budgeting.
6. I’m the business owner, but I don’t want to sign personally.
It’s not automatic that you will need to sign personally. Many times, this isn’t necessary for an equipment lease, especially if your business credit is good. Co-signing is most common when the lender doesn’t have enough security or assurance of a client’s ability to pay out the lease. For example, common instances requiring a co-signer include:
- There’s not enough information reporting on your corporate credit bureau history or your corporate credit is just not strong enough at the time.
- Your business is new or less than 3 to 5 years old
- Your business isn’t showing a large enough profit or tangible net worth just yet
Even if co-signing is required for your equipment lease, it’s a temporary arrangement. A lease agreement is typically only 3-5 years. See also: What You Need to Know About Co-Signing.
7. We don’t want to be stuck with a big buyout payment at the end of the lease.
At the end of your lease, you have the option to buy out your equipment. The terms of your buyout option are determined at the beginning of your lease when you sign the agreement. The 3 most common buyout options are:
- Buy out your equipment for $10.00
- Buy out your equipment at the Fair Market Value at the time of the buyout
- Buy out your equipment at 10% of your total lease amount
We work with you to structure the end of term option that best suits you and your business!
8. I want the option to pay off the equipment early or sell it.
You can always buy out your equipment early with no penalty. However, you will owe the balance of payments to the end of the lease. This is not unlike leasing a space for your business. If you want out of your lease early, the landlord is entitled to the balance of payments left on your lease. With equipment leasing you might even get a bit of a discount!
If you do want to sell the equipment, it’s just like selling a vehicle that’s on a bank loan. You sell it, but pay the difference back to the lender.
But, leasing provides other options, too, including trading up the equipment for a new piece or having someone assume your lease payments on approved credit. Call us to discuss all your options, we are here to work for you!
9. I don’t feel comfortable with a third party being involved.
A third party will be involved with any type of financing. The key is to choose wisely. See Choosing a Financing Company. It’s good to have the right team in your corner! We work for you!
10. Leasing is too complicated.
Equipment leasing is only complicated if you try to handle it on your own. When you use a lease coordinator, it’s simple because your coordinator handles all the details for you. A lease coordinator acts as your advocate and helps you navigate the equipment leasing world.
There are many lease financing sources available. Every lender has their own preferences for deal size, industries, and equipment they like. Some will work with start-up businesses and others won’t. Some are flexible with their lease structures while others have very specific requirements. Not every lender will be the best fit for the needs of your business.
Your lease coordinator will help you in the following ways:
- Find the right lender for your financing needs and present your credit story to them in the best possible way
- Negotiate structuring of the lease to meet your unique needs and get you the best payment options available
- Facilitate the documentation for you, the vendor, and the lender
The complexity is removed and the hard part is taken care of for you when you work with a lease coordinator.
Is Equipment Lease Financing an Option for You?
At Lease 1 Financial, we take our role as your lease coordinator very seriously and are honored to serve you in all of the above ways. We like to take things a step further by doing the following:
- We stay on top of end-of-lease and early-purchase-option buyouts so you’re informed and not paying for your lease any longer than you need to
- Follow up with you to the very end of the lease term to celebrate the success of your growing business and to ensure your lease is meeting your needs
- Should anything unforeseen occur with your business during the lease, we will contact the lenders on your behalf to assist
We’re here to help your business thrive! If you have any questions about equipment lease financing, please contact one of our lease coordinators today.