Equipment leasing is basically a sort of finance where the business owner leases the necessary equipment instead of buying it outright. Business owners are able to lease expensive equipment like vehicles, computers, machinery and many other necessary resources required to conduct a business successfully. Typically, the leased equipment is rented for a fixed period. The equipment does not have to be replaced for several years.
However, some companies prefer to lease rather than buy because they don’t have the financial capital to purchase large-sized machineries and tools. There are also some cases wherein equipment leasing serves as a sensible option to finance the growth of a small business or operations. This is especially true when the capital invested is minimal. For these instances, equipment leasing makes sense and it would certainly help the business meet its short and long term goals.
Most financing institutions and banks offer equipment financing. They do so to help small businesses increase their cash flow or operating cash. Equipment leasing is very popular in the business world as there are many advantages and benefits that a business owner can get from this option. Here are some tips on how to obtain a small business loan with equipment leasing:
It makes the business owners’ assets more liquid. When an asset becomes useless and it cannot be used anymore, then it will lose its monetary value. Since equipment leasing provides a steady income source that can cover operational expenses and keep the cash flow alive, then business owners do not have to immediately spend on new machinery and tools when their current ones become useless.
It allows business owners to improve their financial terms. Generally, banks and financial institutions require business owners to obtain an asset-based lien (leasing) agreement before they can receive a small business loan. However, the equipment leasing contract can serve as an effective mechanism to restructure the loan term. As such, it enables both the lender and the lessee to find a more convenient and less expensive financial terms. In the long run, the lesder may also be able to reduce his total debt burden because he is not required to immediately spend on new machinery or tools when his existing ones become unusable. The lessor can also enjoy better loan terms by having the leaser’s payment term extends until the end of the lease term.
It enables the lessee to manage his own costs. The equipment leasing terms do not dictate the exact costs that will be borne by the lessee; rather, it only enables the lessee to decide on the mode of payment that will be most convenient for him. This means that the lessee can control his budget and allocate funds to his needs rather than having to make payment according to the credit history of the lender.