A Company Lifeline: Sourcing Equipment Financing in Difficult Times

Let’s face it, the last few months have been incredibly tough on most people. The global spread of the COVID-19 pandemic across the globe has not only put pressure on companies but has crippled small businesses and even entire industries. 

The sudden loss of revenue for most companies for the period has put companies under severe financial strain and has forced them to re-think strategies and financial processes. Organizations around the world have gone into emergency saving mode, cutting excess costs wherever they can, reducing staff wages, and refocusing on high income-generating strategies. 

One of the key strategies that many companies reevaluated was equipment acquisition. Being one of the most cost-heavy expenses for the company, equipment can put a huge strain on a company’s working cash-flow. But as a critical part of the business operation, equipment sourcing cannot be completely forgone.

So, if you are currently in a tough financial position, whether it be due to COVID-19, or not, and need some guidance on how to continue sourcing equipment for your company, we took a look. With various financing options open to you, you will be able to reduce the pressure on your working cash-flow and ensure business continuation. 

Conduct A Business Assessment 

When your company goes through some sudden and potentially threatening financial changes, one of the first steps that you will need to take is to start reassessing your business as a whole. 

What does your new working cash-flow look like? What are your assets and liabilities statuses like? What is the biggest risk in your organization? You will also need to ask yourself some tough questions about new equipment in order to know just how much to spend, and how to source the right equipment. 

  • Do you want to increase productivity?
  • Will this increase your productivity?
  • Will you be remaining relevant to your suppliers and ahead of competitors?
  • Can you upgrade your current equipment?
  • What kinds of financial options are there for your company? 

The next step will be to get some buy-in from financial advisors and tax consultants. They will be able to take a look at your books and ascertain your risk appetite, capacity, employee usage, and current resources. 

A full cost-benefit analysis will be able to justify your purchase and unpack how you can use new equipment to get the optimal results for your company. 

You will also need to know what the tax implications will be and whether you will be able to squeeze some benefit out of it from the financing. Leasing, for example, especially operational leasing has great tax benefits. 

Create a Technology Roadmap 

Now that you have an idea of how much you can spend and what your working cash-flow looks like, you can create a blueprint of what your equipment future needs to look like. Remember, if you are investing in equipment, especially expensive, large equipment that will be lasting a number of years, you will need a lifetime plan for it. 

This roadmap will allow you to align your business objectives to long and short-term technology solutions. You will need to assess how your current operations are running, create a one to five-year plan for your goals, and then align it to your technology development priorities. 

The roadmap will also provide you with key insights into how new equipment will be efficiently managed in your business. What will the maintenance plan look like? What is the lifespan of the equipment? When will you need to upgrade to stay relevant? With all of this in hand, you will be able to determine whether you will need to buy the equipment or get it financed. 

Start Looking For Suppliers and Financing Houses

One key aspect of sourcing new equipment is actually shopping around for the right suppliers and partners. 

You are making a very large financial investment and will need to ensure that you have reputable and efficient partners for the transaction. There are a number of things to consider, especially in this financial crisis:

  • Don’t only look for the lowest prices on equipment, the saying “It sounds too good to be true” is very relevant these days;
  • Consider the customer and post-sale servicing;
  • Ensure that you are finding the suppliers from reputable sources. Industry newsletters, magazines, and social media feature numerous trustworthy companies that you can rely on;
  • Find out what their maintenance and insurance policies are if you are taking out financing. You do not want to be unexpectedly left with huge maintenance and servicing costs. 
  • Unpack warranties too. Should the equipment fail within its lifespan, you could be left severely out of pocket if you didn’t have the right warranty with the supplier;
  • Spend some time researching the reviews and reputation of the companies. Not only does social media provide a lot of insight into brand reputations, but you can also contact their listed clients and ascertain their satisfaction.

Should you be opting to finance the equipment, which we will go into next, you should also spend some time picking out the right company.

You will need a reputable financing house that will not only provide you with the right packages but will be able to assist you and give you the right financial guidance. It is important to find a company that will be transparent and accountable and work with you to get the most out of your financing agreement. 

If they are open to negotiating terms, interest rates, payments and term duration, you could be able to get as much as you can out of the agreement as you can. 

Choose Your Financing Option 

There are a number of options available to you to actually acquire the equipment. If you have the working capital, which could be incredibly tough during this financial crisis, and especially if you are purchasing a very big, very expensive piece of equipment, you can purchase the equipment cash. If not, you have the option to rent or lease the equipment through an equipment financing company. 

We took a look at the differences and which would be best for your company. 

Purchasing Equipment 

This is a cash purchase whereby you will be buying the title of the equipment from the outset with a lump-sum of cash. There are a number of reasons why it may be appealing to some companies to buy equipment outright, but there is a larger financial risk and may be highly unattainable, especially in uncertain financial times. 

There are a number of advantages to buying equipment outright. Firstly, the equipment immediately belongs to you, and you are legally the title owner. Secondly, there are a number of tax benefits that come with buying equipment outright and you can write off portions of the purchase to the business. 

However, especially in the cases of small businesses, or businesses struggling financially, there are a number of negatives that come with buying equipment. 

Firstly, a large expense can put a lot of strain on your working cash-flow. Even if you borrow money to finance it, you will be expected to pay a deposit, as well as high-interest rates. 

It is more advisable for struggling companies to use the working cashflow for day-to-day operational expenses and wages than for a large cash purchase. 

Secondly, you could get stuck with old equipment that could no longer be relevant to your company. Especially if you are working with highly technical equipment that updates and upgrades rapidly, you could find yourself not being able to sell it off and buy what you need easily. 

Leasing Equipment 

Leasing equipment could be a much more viable option for smaller businesses and companies fighting through a financial crisis. Because it allows for business continuation and operations to continue, even in financial difficulty, it is the recommended option for these cases.

Leasing allows a company to enter into an agreement with the lessee company whereby the lessee will provide monthly payments to the lessor for an agreed-upon duration of time. In operating lease agreements, this will mean that the lessor maintains the title of the equipment and the lessor will never own the equipment. They will rather return it at the end of the term, renegotiate or upgrade to newer equipment.

In the case of a capital lease, the agreement is signed in order for the lessee to eventually take over ownership of the equipment. This will mean that they will not need to set out as much initial capital as buying to eventually own the equipment. 

The advantages of leasing equipment for a start-up or struggling business far outweighs purchasing the equipment off-hand. Not only, as mentioned, is there less initial capital and risk for the company, but the lessee can negotiate the installment amount, term and occasionally even interest rate to benefit them. 

Operational leases can be highly effective in cases of rapidly evolving equipment. Take IT equipment and laptops for example. In most cases, businesses will need to upgrade every two years. Leasing, therefore, makes sense, as you will be able to complete the term and start a new lease for new equipment. 

There are a number of tax benefits that come with operational leases too. Not only can you write off the interest, but due to the fact that it is considered an operational expense and is not listed as an asset, you can reap various tax benefits. You will also be more attractive to investors and other creditors as you will not have it on your books. 

Wrapping Up 

In these times, and in any financially tricky time, in order to remain in business, it could be worth your while reevaluating your operational strategy. Leasing equipment that is critical to your business’ continuity could be worth investigating due to the reduced risk and strain on your working cash-flow. Make sure you partner with a reputable equipment finance company which will not only work with you to reap maximum benefits of the lease but will also advise you on the best route to take when financing your equipment.


A Comprehensive Guide to Equipment Leasing for Your Start-Up Business

If you have just launched your new business, one of your biggest priorities will be acquiring the right equipment to operate your budget with your available budget. Being a start-up, you most likely do not have a large amount of liquid capital available to make large, one-off purchases of equipment.  

Whether you are in hospitality, office, manufacturing, or aviation, the right equipment can determine the success of your business, so, investing in this equipment is absolutely necessary. Equipment, however, can be incredibly expensive. Aviation requires aircraft, transportation requires trucks and a manufacturing business requires plant machinery. This is certainly not one that you can and even should buy in cash. 

We thought we would take an in-depth look at one of your equipment financing options; leasing. In this article, we unpack what leasing is, why leasing equipment is a great option for your start-up, and how you can go about leasing equipment. 

What is Equipment Leasing?

Essentially, equipment leasing is a financing option that is available to companies, taking the strain off the start-up of making a large, one-time purchase. They are similar to rentals, where the risk is taken off both the lessor and the lessee, but are more complex in structure. 

A lease is a contract, with set terms that are agreed upon at the outset of the agreement. The lessor will hold the title of the equipment and owns the equipment throughout the duration of the lease. Depending on the type of lease that is signed, the lessor can purchase the equipment at the end of the lease, re-lease it, or return it to the lessor. 

The lessor will pay, in equal monthly installments to use the equipment over a period of time and continue to use working capital for the day-to-day operations of the business. Because the lessor owns the equipment throughout the duration of the lease, the actual equipment is used as collateral in case of the lessee’s failure to pay for the equipment. 

The Components of a Lease 

Now that we know what a lease is, let’s take a look at the main components that make up a lease, and what you can expect to sign-up for. 

Lease Duration

This is the length of time that the lease is signed for and will be determined by the company’s needs. Should the company need a large piece of equipment that will last them a significant period of time, a longer lease can be instituted. For a smaller business, with rapidly changing needs, and equipment that becomes redundant quickly, shorter leases are favorable. 

Payment Amount

This is the agreed amount that will need to be paid monthly over the duration. It will be set by the lessor, but the lessee will need to establish when signing whether the cash flow will be able to meet the payments as well as the interest. The agreed amount will also include the residual amount should the lessee be taking ownership of the equipment at the end of the term.   

Financial Terms

These are the terms that determine when the first and last payments are due, the date of due payments, and the penalties for late payments.  

Tax, Maintenance, and Insurance Responsibilities

This will be determined by the type of lease that is agreed upon. In the case of a capital lease, for example, because the lessor will be purchasing the equipment at the end of the term, they will be responsible for these costs. An operating lease on the other hand will put the responsibility of these costs on the lessor as they will either retrieve the equipment at the end of the term or re-lease it. 

Cancellation Provisions

Every agreement requires a cancellation clause to be included. Capital leases, which are instituted for the lessee to eventually purchase the equipment, however, are usually non-cancellable. 

In the case of either the lessor or the lessee not meeting their obligations, there are clauses that allow for such cancelations to be made. These do usually come with penalties, but these penalties will be disclosed at the outset of the lease and will be able to be absorbed into the risk appetite of the company. 

Market Value of Equipment

The market value will need to be stated in each lease, especially a capital lease, where the lessor will be most likely paying a residual according to the fair market value. But this amount is also important to determine the monthly payments, interest,  and insurance costs. 

Lessee Renewal Options

In the case of an operating lease, these options will need to be indicated should the lessee need to continue using the equipment at the end of the lease. They may want to reduce the monthly cost, or even have an opportunity to purchase the equipment. 

The Numbers Behind Leasing 

As a small business owner, you will need to know exactly how leased equipment needs to be reported in your books and where you need to put them on the balance sheet. It is also important to know the tax implications of a lease, and whether they are tax-deductible or not. 

In order to know this, you need to establish which type of lease you will be signing for. As mentioned previously, a capital lease is one that is usually used for larger equipment, where the lessee will be taking over ownership of the equipment at the end of the term. An operating lease will end with the lessor returning or even re-leasing the equipment. So, they will have different financial implications. 

A Capital Lease

Because this type of lease is similar to a loan and will result in the ownership of the equipment, it will be categorized under liabilities as a loan. It is reflected in the income statement as an expense and the market value of the equipment, which is reflected on the lease will be recorded on the balance sheet as an asset. 

It is, however, not tax-deductable like the operating lease is, due to the fact that the lessee will eventually be owning the asset and will take on the full residual value. As mentioned, insurance and maintenance costs will be the lessee’s responsibility. 

The Operating Lease

This type of lease is ideal for smaller businesses that are leasing items for operational purposes like cars, IT equipment, hospitality equipment, and even property. These are leases that are used for equipment that evolves quickly and becomes redundant in a few months or years. 

This lease is treated as an operating expense on the balance sheet. Because the equipment is not, and will most likely not be owned by the lessor, it will not be recorded on the balance sheet as an asset at all, unless a capital lease agreement is entered. In the same breath, it won’t need to be considered a debt and the depreciation of the equipment won’t need to be recorded. 

This type of lease is usually 100% tax-deductible, and the interest that you pay per month will also be tax-deductible. This usually means that you can write off a large chunk of the payments to the business. 

Is Leasing A Good Option for Your Start-Up?

As a start-up business, you might be wondering whether leasing is the best option for you. As a rule of thumb, yes, leasing may be one of your least risky options to acquire the new equipment that you really need to operate your business, especially if you lack the initial capital needed to purchase it. 

We took a look at how leasing could benefit you as a start-up.

Less Financial Risk  

As mentioned before, leasing reduces the risk of the upfront capital needed for the equipment. This working cash-flow can rather be used for day-to-day expenses in the company, like wages. But it also reduces the risk to the company in tough financial times. As we have seen with COVID-19, your economic well-being can change somewhat unexpectedly, so it is advisable to have money in the bank while paying monthly installments on equipment. 

It will also take a great strain off of your working capital. A large sum of money to buy equipment could be incredibly risky as your working capital could be better used for day-to-day operating expenses like wages, and emergency funds for tough financial times. 

A lease rather allows you to stretch out a payment over a number of months and allows your company to absorb the risk. In most cases, the interest of the lease will be written off to the company, meaning less risk for it. 

There is Greater Flexibility and Room to Upgrade

As a start-up, your equipment needs are likely to rapidly evolve. If you are in an industry where technology becomes redundant quickly, a lease is a better option for your company to keep up with your changing equipment needs. 

Take your IT equipment, for example, like your laptops that you work off of. Laptops, printers, and office equipment usually have a lifespan of around one or two years. From then, their performance will start being impacted, and there will be more advanced technology on the market that will suit your needs. Leases, especially operating ones, allow you to either upgrade or re-lease the equipment at the end of the period. 

Leases are also one of the more flexible financing options as the lessor is more likely open to negotiating the terms, monthly payments, interest rates, deposits, and residuals. In certain cases, you can also negotiate the maintenance and insurance responsibilities for particular leases. 

They Are Easy To Apply For

One of your greatest concerns as a start-up may be the fact that you have little to no credit history. In most cases, this will negatively affect how lenders look at you and view your organization when it comes to providing you with financial aid. 

In the cases of leases, however, lessors are more open to providing equipment and leases to start-ups due to the fact that they are leasing their own equipment and using it as collateral. They are more likely to take your personal credit history and financial status into consideration to provide you with the lease. 

The process itself is also incredibly easy to go through. Not only are leases usually approved within 24 hours, but many of them can be done online and approved with a few checks. 

Let’s Talk About Tax

We touched on the tax aspect earlier, and we highly recommend that you hire a registered tax accountant when you sign a lease. Leasing equipment has much higher tax benefits than buying outright, so make sure you have someone on your side to really reap the rewards. 

Because you don’t own the equipment, you won’t need to report the depreciation value of the equipment as a capital cost, and because the payments are tax-deductible, you don’t have to pay additional tax at the end of each year for the machine.

Leasing equipment means that you can also write off a machine that depreciates over time quicker as well as avoid the taxes on the initial up-front costs of a cash sale.  

Wrapping Up

If you are considering leasing equipment for your start-up business, we highly recommend that you do enough research into the agreement to ensure that your risk is as low as possible throughout the entire term. 

Spend some time getting to know the various financing companies in order to ensure that you have a reputable and trusted lessor on your side who is transparent and accountable. If you can, negotiate the terms of the lease to ensure that you get as much value out of it as possible, and always look for options to upgrade once the lease is complete, or whether you can purchase the equipment at the end of the term if necessary. 

Lastly, get a good tax consultant on your side, or a registered accountant to get as much as you can out of the lease! 


A Guideline into the Types of Leasing Available to your Company and How to Choose the Right One

If you are a business owner, you will know that one of the biggest expenses in your company is equipment. Whether you are in construction, transportation, hospitality, or in office and technology, equipment is critical to business operations. 

Most companies, especially start-ups, do not have enough capital at the outset to buy equipment. In fact, it is a huge risk for the cash-flow of any business to use a lump sum of money to buy equipment. A large piece of equipment can be recorded on the books as an asset, but in most cases, it could also be seen as a depreciating liability. 

This, together with the fact that a working cash-flow needs to be allocated to day-to-day operations in the business, like salaries, means that it usually makes more sense to finance the equipment. So, we took a look at leasing equipment, what options you have available, and how you can choose the right one for your company. 

What is Equipment Leasing?

To start off, we thought we would take a quick look at what equipment leasing is, and how it differs from other equipment financing options. 

A lease agreement is a contract between a lessor and a lessee where the lessor will provide equipment that they own to the lessee for a set term at an agreed-upon price. This means that the lessee can forgo a hefty, once-off payment for equipment, and rather spread it over a period of time. 

Leases are usually long term contracts, depending on what type you enter into, and can last anywhere from a year to ten years. Unlike a payment plan and a rental agreement, there can be significant penalties should either party not hold up to their side of the contract.

Leases allow the lessee company to take the pressure off their working capital, and ensure that should the equipment become outdated or redundant after a while, they can simply upgrade and change the lease. 

The lessor will own the title of the equipment for the full period, and at the end, depending what type of lease it is, a residual can be paid by the lessee to transfer the title to own the equipment, or the equipment will be returned. 

There are different types of leases, however, to suit each unique circumstance. Below are the various types of leases that you can choose from for your company. 

Types of Leases 

The next thing to look at is the types of leases you can acquire. There are two very popular types of equipment leases and three more which are less common. We took a look at all five. 

Capital Lease 

A capital lease is one of the most popular, especially when it comes to large equipment with a very high value. Aviation companies will use these types of leases for aircraft, manufacturing ones for large plant equipment, and transport for ships, for example. 

The capital lease is a long-term lease where the ownership of the asset will, at the end of the lease period, be passed from the lessor to the lessee. This will make the lessee the owner of the equipment. It is also referred to as a nominal or ($1) dollar-buyout lease

This type of lease is non-cancellable due to the fact that this loan is instituted with the lessee’s intention to purchase the equipment at the end of the term. Due to the fact that they will be purchasing the equipment, the lessee is responsible for the maintenance of the asset as well as paying taxes and insurance on it. 

This type of lease is very similar to a loan and is categorized under liabilities as a loan. It will appear in the income statement as an expense, and the market value of the asset will be recorded on the balance sheet under the asset column. It may not qualify for tax deductions due to the fact that the lessee will be owning the asset, and maintains full control of the residual value. 

This type of lease is ideal for businesses that need expensive capital equipment that they may not have the funds to buy immediately. The other advantage of the lease is that there is no uncertainty about the value of the equipment at the end of the lease, as this is determined at the signing of the initial agreement. 

Operating Lease

The second most popular type of lease is the operating lease. This type of lease allows the lessor to use the equipment for a period of time which is shorter than the life of the asset. This means that these leases are shorter terms than capital leases and include assets and equipment which is not as hefty as aircraft and plant equipment. 

These are leases for the hospitality industry, for example, car rentals, vehicles, or hotel rooms. It could also include office and technology industries for office equipment like computers and printers. 

The lease states that the lessee may use the asset for an agreed period of time for fixed payments which are agreed upon at the beginning of the term. The lessee will have to return the equipment to the lessor at the end of the term and takes no rights in ownership. 

The term of the lease is not more than 75% of the equipment’s anticipated useful life and the total payments made by the lessor should not be greater than 90% of the equipment’s fair market value. A lessor can choose to return the asset or purchase the equipment on the remaining balance of the fair market value. They may also choose to re-lease it, for a specified period of time. 

This lease agreement is cancellable and can be done so by either party if either does not hold up their end of the agreement. A lessor can cancel and have the equipment returned if the lessee defaults on any of the payments. A lessee can also opt to cancel the lease before the end of the period, but this will usually come with a penalty. 

For accounting purposes, this lease is treated as operating expenses on the balance sheet and is not recorded as an asset. Due to the short term of the lease, it will not be considered a debt and will not need to record the depreciation of the asset. Similarly, the lessee doesn’t treat operating leases as a liability in the balance sheet. These payments are usually 100% tax-deductible, which means that you end up paying even less at the end of the day on the equipment. 

These kinds of leases are usually ideal for businesses that need to constantly update and upgrade their equipment and ensure that the equipment does not become redundant. 


Although not as popular as the previous types of leases, this is another option available where you can generate capital for your business needs with your assets. This is a lease agreement where the seller of the asset leases it back from the buyer of the asset. In essence, this will mean that the seller becomes the lessee and the buyer becomes the lessor.  

This may seem unnecessary, but companies usually enter these types of agreements when they need the cash that has already been invested in a fixed asset, and that asset is needed for the company to operate. 

Essentially, you can continue to use your equipment in order for productivity not to slow down and for revenue to remain constant. You can also use the extra capital to expand the business and increase revenue or to keep the business afloat during tough times. 

Financially, this is great on your books as you can recover up to 37% in tax savings and because you are leasing your equipment back, the full monthly payment is 100% tax-deductible. 

These kinds of leases are not difficult to apply for as you can use the actual equipment as collateral. Financially, it is also very beneficial to your balance sheet as the assets that you pay taxes on converted into contingent liabilities may also lower taxes. It also means that more capital is freed up for businesses as the equipment is not being financed by banks, and impacting your credit.  

The “P.U.T.” Option Lease

The fourth and more uncommon lease is the Purchase Upon Termination lease. Lease payments are fixed, yet a mandatory purchase price is established at the beginning of the terms and is expressed in a percentage. Usually, the lessee must purchase the equipment at the end of the term at 10% of the original equipment cost. This will leave them with two options; either upgrade or renew the lease or actually purchase the equipment for 10% of the original cost.

TRAC Lease

These types of leases are created especially for “over-the-road” vehicles like trucks, tractors, and trailers. Residual values are determined for the end of the lease to purchase instead of the fair market value route. This can be negotiated in advance while maintaining the full deductibility of the lease.

Wrapping Up 

As you can see, there are a number of options for you to choose from which will suit your unique needs. Whether you are looking for a lease to eventually own the equipment, or need a temporary solution that will serve your needs for a year or two, you have several choices with us. With our extensive experience in the industry, we will be able to guide you in choosing the right lease for you and assist you with getting the most out of both the lease and equipment. Your financial peace of mind is our priority, and we will help you make sure that your business keeps operating while paying the lowest installment for your much-needed equipment.


Weighing Up on Equipment Leasing: How a Lease Can Benefit Your Business

If you are a business owner, you will know that one of your biggest operational expenses is equipment. Whether you are in construction, transportation, aviation, hospitality, or office and technology, equipment will most likely be one of the biggest expenses on your balance sheet. 

If you are starting up your business, chances are that you might not have the capital available to purchase new equipment outright, in fact, it is highly unlikely. Even if you are an established business, having to upgrade equipment, or replace something urgently might cause strain on your working cash-flow. 

This is where equipment leasing comes in. Not only can you kick your business off on the right foot, with the right equipment to operate successfully, but you can do so without as much risk of a loan. We took a look into equipment leasing. What it is, what the pros are, and whether it is something your business could benefit from. 

What is Equipment Leasing? 

Let’s start with a basic definition of what equipment leasing is. Essentially, equipment leasing is an equipment financing option that takes the strain of having to make a large one time purchase off your companies finances.

Leases, unlike loans, take a considerable amount of risk off the lender, and although they are similar to rentals, are in fact more complex. Leasing terms state that either the lessor or lessee owns the title of the equipment for the duration of the lease and that there is a portion of residual at the end of the agreed-upon period. 

The cost of the equipment will be equally spread out over the specific term, but some of the costs will be leftover at the end of the term. This could be as little as $1 or the fair market value of the equipment. 

You can also settle on two different leases; capital leases or operating leases. Capital leases essentially replace the concept of a loan whereby the lessor pays a last residual payment at the end of the term and owns the equipment. Operating leases, on the other hand, have shorter terms and bigger residuals, so you can opt to return the equipment at the end of the period, or buy it if necessary. 

With this in mind, let’s take a look at the benefits and downfalls of leasing equipment, and what may work for your company. 

Benefits of Equipment Leasing 

Less Upfront Cost of Equipment 

Not everyone has excess capital floating around to make a once-off purchase on a large item of equipment. In fact, not even the most established business has this capability. Day-to-day operations and expenses take up the largest part of the cash flow, and large purchase items like equipment are more often than not financed for the reduced risk to the cash-flow. 

The total cost of the equipment can be spread out in manageable chunks over a period of time, making it achievable to acquire the needed assets with minimal initial expenditure. You can work together with the asset financiers to work out the duration of the term, the monthly installment as well as interest rates to ensure that you are benefiting from the agreement. 

If you break the numbers down, it could make financial sense for you in the long run. Instead of laying out the full amount to buy the equipment, and put your company at risk. These payments can be spread over time, and the additional costs will be absorbed over time. 

Also, keep in mind the time value of your cash flow. A dollar in the present is worth more than a dollar in the future! 

They Are Easy to Qualify For

This could be one of the biggest advantages of leasing, especially for a start-up. Should you have little to no capital, having a credit score or collateral can be almost impossible. With leasing, the collateral is the equipment that you are financing, and lenders are more likely to agree to provide you with the contract. 

Because companies who sell large scale equipment know that their products are expensive to buy, they are more likely to provide you with the financing you need to acquire the equipment. In essence, they will actually lend you the money you need to buy their equipment. 

There are Numerous Tax Benefits 

Lease payments are in most cases considered tax-deductible as “ordinary and necessary” business expenses. From a financial reporting perspective, operating lease obligations will show up as liabilities, but the payments themselves are considered necessary for business operations and can be written off. In these cases, the short term of the lease means that it will not be considered a debt and you will not need to record the depreciation of the asset. These payments are usually 100% tax-deductible, which means that you end up paying even less at the end of the day on the equipment. 

It is important to get a tax consultant involved in your lease agreement to ensure that you gain as much benefit as you can from the lease. 

Leased Equipment Is Not Seen as a Risk to Investors and Other Creditors

In both operating leases and capital leases, the equipment will not be listed on your books as an asset. In the case of an operating lease, you will list it as an operating expense and, as mentioned, it will be tax deductible. 

Investors or lenders could see the purchased and depreciating equipment as a liability, and could be scared off, so you will be able to take advantage of that. If it is equipment you do not wish to own in the long-term, this will work out for you because you will be making yourself financially open to being provided lines of credit for something you might need in future. 

It Is Easy To Upgrade to Better Equipment 

If you operate in an environment that works with equipment that depreciates very quickly, this might be a better option for you. 

Whether you are a start-up or an established business, investing in new equipment does come with its risks. Not only might the equipment depreciate quickly, but you might find that the equipment becomes redundant over a period of time. 

With leasing, you can reduce the risk of losing money on equipment that you might land up not using in the long term. 

Take a look at leasing a printer, for example. This would be leased through an operating lease agreement with the lessor. A printer’s lifespan is usually around one to two years, before an upgrade comes along with better features. 

With an operating lease, you can complete the term with the lessor and either upgrade to a new printer or re-lease the existing one if it is still meeting your needs. You have the power to decide. 

There is Greater Flexibility 

Unlike loans or rentals, leases usually come with much more flexible terms. Not only are they much easier to obtain, especially as a start-up with little capital to your name, but contacts can be negotiable. Terms like payments, residuals, contract length, and ownership can be negotiated and agreed upon. 

Let’s also take down payments into consideration. The bigger the downpayment you are willing to put on the equipment, the more terms you can waive in the lease. Because leases are easy to qualify for, compared to other types of financing, a bigger down payment will leave you with more leverage. 

You Are Guaranteed Equipment for the Full Term 

When signing a lease, you are tying both yourself and the lessor into the lease for the full duration of the term. This means that even if your company is a start-up and has little credit, you will have the equipment, which can be used as collateral. The only way that you will lose the equipment is if you default on payments. 

If you are leasing operating equipment for a period of time, you will be paying set installments that cannot fluctuate and increase over the time. Most equipment has a set lifespan and lease periods can be determined according to that. 

It is highly unlikely that you will be paying more than the fair market value for the equipment, especially if you are working with leasing specialists. 

Last Thoughts

So, how do you know if leasing is right for you? The best option for you will be to do extensive research on equipment financing companies and set up meetings with each of them in order to establish what terms and conditions they can offer you. Once you have this information in hand, refer to a tax consultant and your financial team for their input. 

Leasing is a practice that shouldn’t be taken on by beginners. You will need the insights into the tax ramifications, as well as the long and short term risk appetite of your business. If you are a start-up, in particular, it could be worth your while hiring a tax consultant for the decision who will be able to advise you on the type of equipment you’re buying, tax codes, as well as the prevailing market values in order to get the most out of your lease.


What is Equipment Capital And How Your Business Can Take Advantage of It

If you are running a business or looking to start up a new business, you will know just how expensive it is to do so. You have to take everything into consideration including permits, registrations, employees, and naturally, equipment and resources. But if you are in the manufacturing, transporting, or servicing industries, those equipment costs can sky-rocket. 

Buying this kind of equipment can make a sizeable dent in your pocket, no matter the size of the business. Whether it is upgrading, replacing, or buying completely new, these vital components to your business can come at a hefty price tag. 

So, we took an in-depth look at equipment capital. What it is, how to raise it, and how it can come in handy for your business going forward.

What is Equipment Capital? 

Let’s start with the actual definition of equipment capital. These are the funds used to purchase and/or maintain the equipment needed to run or support the business. 

Capital is usually a long-term investment of sorts and is the owner’s equity portion of the investment. This capital purchase can be depreciated over a pre-defined useful life and expensed as operating expenses in the balance sheet. 

Because these assets have a lifetime of more than a year and are frequently used, they often come with maintenance plans or require regular maintenance. This is in order to get the best economical effect of their use in running the business. The capital required can often be quite substantial and unaffordable for a lot of companies, a reason why there are a number of options available to companies to raise this capital. 

You can consider the capital needed for equipment as working capital. These are the funds needed to maintain the operational expenses of a business on a month-to-month basis.

What Kind of Equipment Needs This Kind of Capital?

You may be wondering what kind of equipment we are referring to. The common term for these kinds of assets are in fact, capital equipment. This is crucial equipment that either supports the business or produces the commodities or products for the company. 

Each asset or bit of equipment needs to be valued at over $5,000 for it to fall within the capital equipment bracket and needs to have a useful life of over a year. Companies who frequently invest in these types of assets are either continuously expanding their operations or keeping up with technological advances. 

For smaller capital outlays and equipment under $5,000, it is usually encouraged to fund these via credit card facilities, business overdrafts, or term loans over financing or leasing options. The larger equipment that we are discussing is best funded by dedicated asset funders or funding facilities provided by the equipment/machinery manufacturer.

Capital equipment may differ across various industries, but includes assets like machinery, lifting systems, inventory transportation equipment or warehouse racks and trucks and trailers. 

How Do You Acquire Equipment Capital?

The next thing to look at is how to actually acquire this capital and get your equipment funded. As mentioned earlier, for anything over $5,000, you will need to look for something bigger than a normal loan. There are a number of companies that specialize in asset finance, which you can approach to finance your equipment. 

Some companies provide overall asset finance, and tailor packages for your needs, while others specialize in specific industries or for highly specialized equipment. One excellent example of this is the aviation industry. Due to the unique needs and operations, operators are more likely to approach aviation finance institutions than a non-specific company or even bank. 

In these cases, the institution has established relationships and partnerships with various industry-related suppliers and financial institutions in order to provide a full turn-key service to the company. This will usually mean that if there are maintenance requirements and costs on the equipment, it can be fulfilled by the supplier at an agreed-upon reduced cost, and will most likely fall within the maintenance plan.  

What Equipment Funding Options Do You Have?

The next thing to consider is what kind of financing option you actually want and can afford. You will usually have three options at the finance company. Each option comes with its own pros and cons and you will need to consider all before jumping in and choosing the first option presented. 

There are three ways asset financial institutions structure their loans for equipment capital; financing for a purchase, rental agreements or by providing a leasing option.

Asset Finance Loan 

The asset finance company can support you in actually purchasing the equipment by providing you with a loan which is tailored for your needs. Here, you will be able to agree with them on a specific installment, set term to pay it back as well as the interest attached to the loan. 

The term of the installments is usually set according to the lifespan of the equipment and can range from one year to five years.  So, if IT equipment depreciates over three years, the financier will usually set the term for around two years. 

It is important to keep in mind that while you are still paying off the installments, the lender will own the product and if you default or can’t continue paying the installment, they will have legal ownership of it and will be able to recover the outstanding amount from you. You will also not be able to sell the equipment while you are still paying for it. You will need to settle the remaining installments before selling the equipment on to someone else. 

You may also approach the financing company for the capital to assist with the other aspects of running your business. Not only can you purchase inventory, but you can use it to pay short term debts, run day-to-day operating expenses, and even pay wage shortfalls. 

In many cases, the financing company can tailor-make a package that will include a maintenance or service plan for the equipment. They will use their contacts of suppliers to assist you with the upkeep of the equipment.


The renting of an asset is a more temporary solution to your equipment needs. This is a form of acquiring equipment that is needed on a short-term basis by paying a set fee for that amount of time. Because of the high price of the equipment, and the short-term need for it, you can approach certain suppliers for rental contracts, to return it directly to them at the end of the period. 

The cost of the rental will usually be a lot higher than installments to pay it off as the supplier will need to recover the costs of buying the equipment themselves, as well as need to make a profit each time. 

So, when do rentals come in handy, you might be asking? It could be a great option when you need a very specialized and expensive piece of equipment for a few weeks or even months. Take a crane in construction into consideration. You might not need to buy one but need it for a certain project for a short period. 

Rentals also work in industries that are rapidly evolving when it comes to technology. The IT industry is a great example. In many cases, technology could overtake the equipment that you are using in under a year, and it makes more financial sense to rent. It is important to know that rental costs are expensed on the income statement for both accounting and tax purposes.


This is a contract similar to rentals where you rent equipment for a set period of time and according to certain terms. There are, however, more conditions that come with a lease contract, and the lessor is held to maintain the equipment in the contract. 

A lease is usually a long term contract and can last anywhere from a year to ten years. Unlike a payment plan and a rental agreement, there can be significant penalties should either party not hold up to their side of the contract. A lease can also result in what is known as a bargain purchase option in which the equipment can be bought for an amount that is significantly lower than it is worth. Keep in mind, the amount of the lease installments is usually inflated, so it ends up actually being worth it to buy it off. 

From an accounting perspective, leases typically fall into two main categories; operating leases and capital leases. This means that if the lease terms meet certain criteria, the lease will be considered capital. These terms include the fact that the lease payment needs to make up most of the fair market value of the asset. It will also need to make up most of the effective useful life of the asset, and there has to be a bargain purchase option.

How Can Equipment Capital Come in Handy For Your Business?

Now that we know the different options for financing your equipment, we thought we would touch on how gaining equipment capital can actually benefit your business in the long term. Apart from the fact you are investing in new equipment to keep your company running, it actually has several more advantages.

It can increase your working capital

When you opt to finance or lease your equipment, you do away with the hefty up-front payment of actually buying the equipment that you need. Making a large purchase like equipment will take a dip into the working capital and cash flow that your company needs to continue running. 

The fact is, and as COVID-19 has proven, you simply never know what is around the next financial corner, and having solid working capital available means that as a business owner, you can have funds available for operating costs as well as in an economic dip. 

You can stay up-to-date with the latest equipment

Let’s face it. Technology is evolving quicker than we can keep track of. Every single year there is an upgrade or a new addition to something that you are using, and in most industries, having the new technology and upgrade can mean getting quicker results more effectively and more efficiently. 

Having the financing option available means having access to new technology and equipment easier than buying equipment that takes a huge chunk of capital each time you make a purchase. 

There are huge tax benefits for financing your equipment

Keep in mind that when you take financing on something like equipment, the interest that you pay is tax-deductible. This means that you can write off a portion of your payment for your equipment when you submit your tax report.

What is more, should you be leasing the equipment, you can go as far as to write off the entire lease payment as a business expense, not just the interest paid as this is tax-deductible. The entire amount paid fo the equipment can be written off by deducting the monthly lease payments on the annual tax report.

Easy application process

Lastly, one of the key benefits of sourcing capital for your equipment is the ease of the application process. 

In most cases, approvals take around 24 hours and the process can be done online. The application takes around five minutes to fill out and once terms have been agreed upon, the equipment can be picked up and the finances will be left in the hands of the team. 

Wrapping Up 

The advantages of getting finance for your equipment are very clear. Not only is it efficient and easy to do, but it can assist with business continuation, especially during difficult times like COVID-19. Whether you are a new company or a start-up, equipment capital financing options are certainly available to keep you in business.