As a business owner, you know that purchasing new equipment is a major investment- no matter what size your business is. However, when you require new equipment, you do have options and the best way to move forward is to consider those options. This will benefit you in a variety of ways in both the short-term and long-term.
As you consider the jobs you have booked and the equipment you will need to complete those jobs, you need to consider your payment options. Leasing equipment is still one of the most viable ones.
Rent vs. Finance vs. Lease
When you need a piece of heavy equipment, there are three basic options: rent, finance, or lease. Each has advantages and disadvantages. We will explore these options below:
The first option is to rent, which is pretty self-explanatory. If you need to use a piece of equipment but don’t want to own it, renting is a great option. This allows you to get a job done without the obligation to keep the equipment. Plus, it allows you to test a piece of machinery to see if you like it.
On the other hand, there are some disadvantages to renting. You’re not investing in the equipment and the rental payments will not increase your capital. Also, you pay a higher rate per hour than if you were to buy the machine. Money spent on rent doesn’t increase equity.
Also, rental payments do not go toward ownership of the equipment. Therefore, you may need to invest in another piece of equipment in the future, depending on your needs. One exception is a rental-purchase, which is an option where you can apply a portion of your rental payments towards the future purchase of the equipment.
The second option for obtaining equipment is financing, especially with low-interest rates. This option works for businesses that want to purchase the equipment but don’t have the money to spend upfront. Financing is when the funds to buy the machine are borrowed and then paid back in installments. The machine is used as collateral.
The benefit of financing is that you are investing in equipment that you own, and you can pay for it over time. The disadvantage is that you are taking on extra payment, with interest, until you pay it off.
The third option for obtaining equipment is leasing. This situation allows you to use equipment from a dealership for a prescribed time. Typically, the terms are written in 12-month increments.
At first glance, leasing looks like renting- but offers more benefits. Leasing provides you with access to new equipment, a lower monthly cost, and options for your level of financial commitment. In equipment leasing, you are offered a machine in exchange for a monthly payment. Once again, similar to renting, but with the potential for additional investment.
If you decide to try equipment leasing and end up wanting to purchase the equipment, you’ll know what the price will be at the end of the term. However, if you choose not to buy in the end, you do not commit.
What should you consider before equipment leasing? First, the timing- what projects do you have on the horizon? Have you thought about your needs? Is there enough rental equipment ad your local dealer? If not, you may want to consider equipment leasing so you can be sure the machine will be there when you need it.
Think about what makes the most sense for you and your company’s financial picture. If you only need the machine for one job, renting may be best. On the other hand, if you know that you will need a machine for the long haul, financing may be best. As you weigh your options, contact WCK Financial. We can offer you some guidance on how to decide what is best for you.