What Is The Difference Between Equipment Leasing And Financing?

In the 21^st century workplace, none of us are safe from redundancy. We have to constantly upgrade and learn new skills in order to remain relevant in the everchanging landscape. Same goes for equipment used by businesses – eventually the day will come where machines and appliances will have to be replaced, sometimes through no fault on their own.

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Acquiring new equipment can be costly, considering that it needs to be done regularly. With newer, more sophisticated models coming out in the market every few years, it is all businesses can do to stay on top of the game. The million-dollar question: should you buy or lease equipment? It all boils down to what works best for your business.

Equipment Financing

First, let us address the difference between equipment financing and equipment leasing. Think of it as a Venn diagram: equipment leasing can be found inside the giant circle of equipment financing. To put it simply, equipment leasing is a type of equipment financing.

Another way to finance equipment is through an equipment loan, which results in eventual ownership. This is the biggest difference between an equipment loan and equipment leasing: the latter does not result in eventual ownership, though regularly scheduled payments are common to both.

Equipment financing does not usually require any collateral: the equipment itself serves as collateral and can be taken away if payments are not made timely.

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Equipment Leasing

To put it simply, equipment leasing is an agreement to rent the equipment, and does not result in eventual ownership. While it may be more costly in the long run, it is a great choice for businesses that only need the equipment for a limited period of time. This brings us to the biggest advantage of equipment leasing: business owners who lease do not get stuck with outdated, obsolete pieces of equipment.

With leasing, you have the flexibility to exchange equipment for newer, upgraded models over time and do not have to go through the hassle of getting rid of outdated equipment. Some lenders also give you the option of purchasing the equipment at market price after the lease is over. Do keep in mind that if you cancel the lease before the end of the contract, a termination fee is almost always payable.

Equipment Loans

If your business requires a piece of equipment for long-term use and can afford a larger upfront payment, an equipment loan may be a good option. Although it can be more economical than leasing over a long period, there will come a time where your equipment will need to be replaced with an upgraded model.

At the end of the day, the choice to buy or lease comes down to what makes more economical sense for your business. Here at CMS Funding, we lease out a wide variety of equipment for businesses, including but not limited to LED lighting, generators, excavators, and restaurant equipment. We aim to approve all applications within 24 hours – get in touch to see if you qualify for our equipment leasing and financing services today!