In order for your business to operate successfully, you must have the appropriate equipment. Depending on your field, this may include vehicles, heavy machinery, computers, or electronics. Purchasing these items can be expensive, but it is necessary to grow your business. If you can’t afford to purchase new equipment outright, you have two options, equipment financing or equipment leasing. There are advantages and disadvantages to both.

1. How Long Will the Equipment Last?

When you are considering a new equipment purchase, you will need to consider how long you will have the equipment. Some technology advances so rapidly that your new equipment will become obsolete before it is even paid for. When your loan is paid off, you will own a piece of equipment that is no longer useful. If you anticipate this being the case, you might choose leasing over equipment financing, as you can return or trade in the equipment at the end of the lease.

2. Can You Afford a Down Payment?

Leasing requires no down payment, but financing does. Generally, a smaller down payment means you will pay a higher interest rate, so you should consider paying more than the minimum down payment if you can afford it. If you can’t afford a down payment, leasing may be a better option; however, if you can afford the down payment, financing your purchase may cost you less in the long run, even with interest.

3. Do You Qualify for a Loan?

Equipment financing is asset-based, meaning your assets are used as collateral for the loan. For this reason, equipment loans are generally easier to qualify for than other types of business loans. However, if you are unable to obtain a loan or don’t want to risk your other business assets to secure a loan, leasing is generally a quick and easy process. There is no collateral required and less paperwork than applying for a loan.

4. How Will You Handle Repairs?

When you finance your equipment purchase, you do not own the equipment until the loan is paid off, but you are still responsible for repairs. You will need to consider potential repair costs in your budget. However, when you lease equipment, the leasing company is responsible for repairs. This can help you avoid unexpected expenses.

There are many things to consider when purchasing new equipment for your business. Making the right choice about financing or leasing can help you get the most value for your equipment purchase.