For manufacturing industries, lease financing or purchase of equipment can be critical to growth and productivity. Even other industries like medical, mining, IT and more need the latest equipment to boost their efficiency. To ensure working capital does not get depleted, you can choose equipment financing to purchase the needed machinery and tools or you can lease it for a specific period of time. By understanding how they work, you can make better decisions for your business.
What is Equipment Financing?
It is the process of borrowing money from financial institutions:
- To purchase or upgrade your machinery
- To repair and maintain equipment/tools
While getting access to funds, you can also enjoy tax benefits. You can choose from different types of equipment financing suiting your needs based on your industry or needs:
- You can opt for construction equipment loans if you are a part of the infrastructure development industry
- Take medical equipment loans, as it is specially designed for medical instruments
- To buy computers, projectors and laptops, you can opt for an IT and office equipment loan
- Avail a manufacturing equipment loan to purchase machinery if you belong to the manufacturing sector
These loans can either be collateral-free or consider the equipment you purchase as security. This depends on the total cost of your purchase and the lender.
Also Read: Different Types Of Loans
What is Equipment Leasing?
It is the process of renting out or leasing the machinery without paying the upfront value. This process allows you access to required equipment while reducing your costs. It requires you to pay a monthly fee over a specific time period. Once your lease term expires, you can:
- Renew the lease
- Purchase the machinery by paying the remaining amount
- Return the equipment
Equipment leasing comes with certain advantages:
- It is often tax-deductible
- You can get access to the latest equipment without owning it
- It gives you the flexibility to choose the ideal option at the end of the lease tenure
- You don’t need to bear the depreciation cost of the machinery
How to Apply for Equipment Leasing and Financing
To get finance for equipment purchase, you have to meet some basic eligibility criteria:
- You should be a contractor or part of a corporation, private or public company
- You should fall under the age bracket of 21-65
- Your business should be profitable for at least 2 years
- There should be no legal issues with your business ownership
- You should have a good credit history
- You should have filed income tax returns for at least 2 years
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Upon fulfilling the criteria, you can follow the next steps:
- Compare factors like interest rates with different lenders, and choose the best one for your specific requirements
- Make sure that purchasing the machinery fits in with your business plans and supports revenue generation
- Gather all the necessary documents that you need
- Apply for the financing through the online or offline mode
- Post application, the lender will process your request and disburse the funds after approval
Equipment Leasing vs Financing
Here are some common differences between leasing and financing:
- In the case of leasing, you do not own the equipment. Equipment financing contributes to building your equity as the machinery is considered an asset.
- In the case of equipment leasing, you can terminate the agreement at any time based on the terms of the agreement and by paying a penalty. On the other hand, the lender can seize the equipment if you default on the payment of equipment financing.
- Financing equipment provides you full control over the machinery and its modification. On the other hand, you generally cannot make any modifications to equipment in case of leasing.
- Leasing may include additional payments such as insurance and tax. This can increase the cost, which may sometimes exceed the cost of purchasing the equipment outright. When you purchase equipment with a loan, you do not pay any additional charges except for interest and processing fees.
Both equipment leasing and financing are great and effective ways to upgrade your business and access growth. However, if you need equipment for a new business or have personal expenses to address, consider opting for finance from Fibe.
With a Fibe Instant Personal Loan, you can get a loan up to ₹5 lakh without end-use restrictions and affordable interest rates. You can apply online with minimum documentation on meeting simple eligibility criteria.
Moreover, it comes with an option of foreclosure without added cost and a comfortable tenure of up to 36 months, so you can enjoy stress-free repayment. Register on our website or download our Personal Loan App to get a quick personal loan online.
FAQs on Equipment Leasing Vs Equipment Financing
Which is more cost-effective: leasing or financing equipment?
Leasing allows you to access the latest equipment on paying a monthly cost that is lower then the cost of buying it. However, financing it with a loan gives you ownership over equipment. You can opt for either option depending on your company’s requirements and financial needs and knowing more about leasing vs financing.
How does equipment leasing affect my business’ cash flow?
Equipment leasing allows you to spread costs over time, giving you the flexibility to maintain the cash flow of the business better.
Can I upgrade or exchange leased equipment before the lease term ends?
Yes, you can upgrade or exchange leased equipment before the lease term ends. The terms and penalties depend on the lease agreement, so check it carefully before you sign.
Can I lease or finance used equipment?
Yes, you can lease or finance used equipment, too. This can be an affordable option as compared to getting new equipment.
