When businesses do not have the capital to buy equipment outright, they often turn to equipment leasing companies. This choice allows businesses to spread the cost of new equipment over a longer period than purchasing equipment outright. 

The Basics of Equipment Leasing

Equipment leasing is a method of financing in which companies rent equipment rather than buy the equipment. The equipment is on a lease for a set amount of time, and when that time is up, businesses can return the equipment, extend or renew the lease, or buy the equipment.

It is important to remember that leasing equipment differs from financing equipment, where a company would take out a loan to purchase equipment. With an equipment lease, companies do not own the equipment unless they choose to buy that equipment at the end of the lease term. 

Companies should also remember that leasing often costs companies far more in the long term than buying the equipment upfront. That said, leasing is often the best choice for companies that cannot afford purchases.

How an Equipment Lease Works

These types of leases are quite similar to rental leases that a business may have on a property where they operate. The leasing company will draft an agreement that lays out how long the lease will be and how much the company will pay each month. 

There are cases where companies are allowed to break the lease during the life of the lease, and it is essential to make sure these terms are spelled out clearly in the contract. At the end of the lease, companies may purchase the equipment at a rate that is right around the current market rate for the equipment, but generally, it’s lower than that amount since the equipment is considered used. 

How much a company pays for leasing equipment is often tied directly to the business’s credit score. The lower the business’s credit score, the more they will generally pay for leasing the equipment. 

The length of an equipment lease is usually three, seven, or up to 10 years, depending on the equipment leased. Since an equipment lease is not a loan, your lease will not appear on your company’s credit report, which will not impact your company’s ability to do any other types of borrowing.

Businesses generally love to lease equipment because it allows them to acquire the equipment they need without huge cash outlays up front. The added benefit of this type of equipment acquisition is that companies can potentially own the equipment once the lease ends.