When financing, there are many options to consider – especially when it comes to a high-ticket purchase for new equipment. Do you put it on a line of credit? Get a SBA loan? Finance through a bank or where it’s purchased? Lease instead of buy?
When customers come to us regarding lease or buying decisions, Horizon Community Bank looks at all aspects and options, always trying to match the length of financing to the expected lifespan of the purchase. If that lifespan lasts between six months to three years, leasing is often the best choice.
If you need something fast, leasing also might be a good idea. The process from application through approval is usually much faster than conventional financing.
Here’s are two examples to compare. A big purchase of manufacturing or farming equipment that’s expected to last ten years is more cost effective to purchase, since it has a long useful life and stretching payments across ten years keeps them fairly low. Computers and IT equipment that are obsolete in two years are another matter altogether. That type of purchase is better off with a short 18-24 month lease. A longer term means you’re likely to still be paying them off long after they’re obsolete and need replacing. Buying new equipment before the old is paid off is a double hit to the budget that doesn’t make sense for most businesses.
Leasing requires less paperwork, faster funding and more flexibility in matching the use to the term of the lease. It’s also likely to require less money down with smaller payments, allowing the lessee to have better equipment for less money.
On the flip side, however, drawbacks include a higher interest rate compared to a purchase, and breaking the lease can be difficult. Plus, like a purchase, the lessee is usually responsible for insurance and maintenance on the equipment.
To learn more about leasing versus buying equipment, cash flow and appropriate financing for your business, Horizon Community Bank is here to help. Contact us today at the branch nearest you to schedule an appointment.