The Difference Between Equipment Funding And Leasing

Equipment leasing and equipment funding are two different approaches that a company can use to get the equipment they need. Equipment leasing means that a company hires equipment for a period of time exactly the same way as one would lease an automobile from a dealership. When the lease period is over, the lessee has the option to purchase the equipment, return it to the lessor or renew the lease agreement. When it comes to equipment funding, the company seeks financing to purchase the equipment outright.

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In this article, we look at the differences between the two approaches and how well they work in various scenarios.

Equipment Leasing

As noted earlier, companies that lease equipment do not actually get to own them and this can offer a number of benefits to the company. This approach is particularly beneficial for companies that need to constantly upgrade their equipment. This is because these companies do not tie up their cash buying equipment and can upgrade their equipment from one lease agreement to the next. There are also tax benefits when it comes to leasing equipment.  The IRS for example considers all lease payments to be 100% tax-deductible.

If you decide to go the lease way, you may need financing in order to lease the equipment that you have in mind. Always ensure that you understand all the terms that the financier offers. Lease agreements may often specify how the equipment in question may be used. Ensure that you also understand what is entailed in the agreement as there may be financial penalties if some of these conditions are not followed.

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Equipment Financing

When it comes to equipment financing, the company seeks to own the equipment outright. This approach works for companies that do not need to upgrade their equipment constantly. Here, the company gets financing, pays for the equipment, and then repays the financier over a specified period of time. There are benefits to purchasing equipment outright. For starters, the purchased equipment becomes a business asset and adds to the net worth of the company over time. It also means that at the end of the equipment’s life, the company has the option to sell the equipment and recover some of the money that they spent purchasing it.

Best Option

When it comes to the two approaches, a lot is determined by the circumstances that a business faces. Companies whose operations are greatly affected by the quality of equipment in use should seriously consider equipment leasing. This is because this approach allows a company to constantly upgrade their equipment without being affected by depreciation costs. Equipment leasing is also great for companies that operate on a project to project basis. Leasing allows them to avoid holding on to equipment that they don’t need between projects. A good example of such an industry is the construction sector.