The SBA (Small Business Administration) estimates it costs a microbusiness around $3,000 to start. A home-based franchise costs between $2,000 and $5,000 to start.
But if you have a business where equipment is required, the costs are much higher. Often, it’s difficult for businesses to have enough capital to own and operate their own equipment without a little help.
It often makes more sense for them to lease or rent their equipment instead. But choosing between lease vs. rent isn’t always so easy.
If you’re trying to determine the difference between lease and rent, keep reading. We’re sharing with you the difference between finance and lease.
What Lease vs. Rent Means
While both renting and leasing means you have the use of equipment without outright purchasing the equipment, there are marked differences.
With an equipment loan, you use money given to you buy a financial institution to buy the equipment you need. In most cases, you’re fronted 80% out of 100% of the money you need.
Renting allows you to use the equipment you need for a specific period of time.
There are plusses and minuses to both methods. Learning about them will help you decide which option is right for your business.
The Convenience of Rent vs. Loan
One big difference between rent and lease is that it takes more effort to acquire a loan. You have to rely on finding a lender willing to provide you with funding.
You then have to negotiate a decent rate, how much deposit to put down, and securing assets. You also have to pay back interest.
However, a lease does allow you to own equipment straightaway even when you don’t have all the capital. Instead, you’re given time to pay for an expensive piece of equipment that you’ll own in the end.
The Convenience of Leasing
If you choose to lease your equipment, you often get a lease deal from the manufacturer. You also don’t need to put any money down nor do you need to put up anything for collateral.
And companies that lease equipment often are willing to work with businesses with less than stellar credit. However, if you can no longer pay for your equipment, the leasing company will repossess the equipment leaving you without the ability to properly run your business.
With leasing, as long as you know what equipment you want and where to find it, there’s a good chance of acquiring the equipment quickly and easily.
You Have More Control When You Finance Your Equipment
One great difference between lease and finance is that purchasing your equipment means you get to use it exactly how, when, and where you want to. It’s your equipment to use how you see fit.
The downside is that if the equipment loses value easily or quickly becomes outdated, you’re stuck with equipment without high resale value.
You Have Less Control Over How You Use Your Equipment with a Lease
But when you lease equipment, another company has ownership of the equipment. There are cases where certain restrictions are set in place on how your company can use the equipment.
Also, the price of your leasing deal depends on a few factors. Your personal credit score, your businesses annual revenue, and how long you’ve been in business are all taken into consideration.
Also factored in is the value of the equipment, the length of the lease, and how well the equipment holds its value. As a result, you could end up paying more over the course of the lease than you would if you bought your equipment using a loan.
With a Lease, You Have Flexibility
Another big difference between finance and lease is that when you choose to finance your equipment, you’re stuck with it until it’s paid off. Meaning, if you no longer need the equipment, but you’re still paying it off, there’s nothing you can do except continue to pay off the loan.
Leasing Offers a Few Flexibilities
But if you choose to lease your equipment, you have a few options. In many cases, leasing companies are happy to let you purchase the rental equipment outright at the end of your lease for fair market value.
You can also continue to simply lease the same equipment and start a new agreement. You can return the equipment or you can exchange the equipment for a newer model.
Leasing Offers Flexibility for Making Payments
When you have a financial loan, you have fewer options when it comes to making your monthly payments. When you lease, you have a few more payment options to choose from.
Leasing companies tend to offer options that are more aligned with the needs of their customers. They may offer programs such as no money down at the beginning of the lease, creating a seasonal payment program that matches your revenue cycle, and even deferred programs that can help you meet your budget.
Step Payment Programs
Many leasing companies also offer a step payment program designed to match the timing of your revenue-generating ability. It’s a great option to consider if you’re just getting started or are in the process of expanding and need to keep all the capital in-house until you begin making a profit.
How to Choose the Right Solution
The easiest way to decide whether to lease or rent is to determine how much money you have available immediately and how quickly you think the equipment you need becomes outdated.
If you have money you can put towards a loan and you know the equipment you want will last for a long time, an equipment loan probably makes the most sense for your business.
However, if you don’t have a lot of money available and/or you know the equipment you need will become obsolete fairly quickly, then it makes more sense to lease your equipment so you can upgrade as needed.
Remember that both loans and leases offer tax incentives.
Work With Us
It’s not always easy to figure out if lease vs. rent is the best option for your company. But we can help you make that determination.