Equipment Financing vs. Leasing

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When it comes to acquiring essential business equipment, you have two primary options: financing and leasing. Each method has its advantages and disadvantages. The best choice depends on your specific business needs and financial situation. In today’s competitive environment, having the right equipment can be a big difference-maker. The financing choice can impact your cash flow, tax liabilities and overall business financial health. Understanding each option is essential for making an informed decision.


Equipment Financing

Equipment financing involves taking out a loan to purchase equipment. The equipment serves as collateral for the loan, making it potentially easier to obtain financing. Purchasing equipment is most often done when you want to acquire something that doesn’t require regular updates, such as a new work truck or forklift for your company.

There is a downside to equipment loans. If the equipment you’re buying becomes obsolete, that doesn’t affect the loan. That means you must continue paying for the equipment you may not even be using.


Pros of Equipment Financing

  1. Ownership: Once the loan is paid off, you own the equipment outright, which can be a significant asset for your business.
  2. Tax Benefits: You may be able to deduct interest payments and depreciation on your taxes.
  3. No Restrictions: Since you own the equipment, you are not restricted in its use and can modify it as needed.

Cons of Equipment Financing

  1. Higher Up-front Costs: Financing often requires a large down payment, which can be a significant initial expense.
  2. Maintenance Responsibility: As the owner, you are responsible for all maintenance and repair costs.
  3. Depreciation: The value of the equipment may depreciate over time, potentially reducing its resale value.

Equipment Leasing

If you plan to lease equipment, you’re essentially “renting” that equipment for a period of time. Usually, you are not required to pay anything down, so you’re only responsible for the monthly payments during the lease agreement. Once the lease agreement has ended, you can renew or terminate the lease or purchase the equipment.

Leasing equipment is a quick and simple alternative to acquiring essential-use equipment. It helps to defer upfront costs associated with equipment purchases. If your business is expanding quickly or your equipment requires frequent updates, leasing may be your best option.


Pros of Equipment Leasing

  1. Lower Up-front Costs: Leasing typically requires no down payment, making it easier to acquire equipment without a significant initial investment.
  2. Protection Against Obsolescence: Leasing allows you to upgrade to newer equipment at the end of the lease term, which can benefit industries with rapidly advancing technology.
  3. Flexible Terms: Monthly, quarterly, semi-annual and annual. Payments may start low and then increase later in the lease term.

Cons of Equipment Leasing

  1. No Ownership: You do not own the equipment unless you choose to purchase it at the end of the lease term.
  2. Potential Early Termination Liabilities: It is sometimes difficult to cancel a lease without some sort of early termination fee being charged to the lessee.
  3. Usage Restrictions: Lease agreements may include restrictions on how the equipment can be used.

Key Considerations

When deciding between financing and leasing, consider the following factors:

  1. New or Used: New equipment offers the latest technology, warranties and longer lifespans but can depreciate quickly. Used equipment is usually more affordable but may lack technological advantages or require more maintenance.
  2. Duration of Use: Financing may be more cost-effective if you need the equipment for a long time. For short-term needs, leasing might be the better option.
  3. Cash Flow: Leasing can help preserve cash flow by spreading payments and reducing upfront costs.
  4. Technology: In industries with rapidly changing technology, leasing can allow your operations to stay current without the burden of owning outdated equipment.

Cadence Bank will work hard to make your job easier, whether you choose equipment finance or leasing. Our team of experienced equipment finance professionals listens to your challenges, needs and goals and then works with you to tailor a program that best suits your circumstances.

For almost 50 years, we have specialized in relationship-based equipment finance and leasing for companies and municipalities. Whether it’s transportation, manufacturing, medical, petroleum, construction, aviation or marine, we have experts who can help you get the resources your business needs.

We understand that behind every decision made, every dollar spent, and every piece of equipment used, there is a relationship founded on trust, responsiveness, reliability and experience. Click to learn more, or contact us today to get started.



Sources:

https://www.sba.gov/business-guide/manage-your-business/buy-assets-equipment#decide-to-lease-or-buy
https://www.forbes.com/councils/forbesfinancecouncil/2023/04/13/five-reasons-to-consider-financing-equipment-instead-of-buying-it-outright/
https://www.forbes.com/councils/forbesfinancecouncil/2024/04/16/buying-business-equipment-a-comprehensive-guide/


This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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