No matter what kind of business you run, you’re going to need some kind of equipment to run it. Most people automatically think of heavy machinery in this instance, but that’s far from the case. If you run a restaurant, for instance, you’re going to need to have mixers and stoves and ranges. If you run a childcare center you’re going to need refrigerators and beds and desks. In fact, there’s so much equipment that any business needs to run that it can get dizzying to think about.

As difficult as it is to think about, it’s often harder to come up with the capital to buy all of this equipment independently. And this is where equipment leasing and equipment financing comes into play. While they may sound the same, rest assured that there is a large gulf between the two in terms of how they impact your bottom line.

What is the Difference Between Equipment Financing and Equipment Leasing?

With an equipment lease, the business owner will rent the equipment from a lender, who is the owner of the equipment. When the lease is over and the lender has recouped the costs of the equipment, then the business owner can purchase the equipment at the current fair market value (which is probably lower than the initial value since the equipment will now be in used condition).

On the other hand, equipment financing is where the lender loans the money to the business owner, who then uses the loan to buy the equipment themselves. When the business owner repays the loan, then they own the piece of equipment.

Which Should I Opt For?

This depends entirely on your needs regarding the equipment. Equipment leasing is a great choice for equipment that you believe will become outdated in a few years and thus is not worth the investment to own. This is great for items that you may need for a predetermined amount of time but don’t need as a cornerstone in your business.

Equipment financing is great for pieces that you will permanently need for your business setup, but you don’t have the capital to purchase outright at the beginning. If you think that you need to own the equipment at the end of the day, equipment loans are better than leasing, since leasing is essentially renting the equipment while financing is working toward ownership.

Make sure to take stock of your equipment needs before choosing between financing and leasing.

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