Stepping up your equipment game in 2024 doesn’t have to be a head-scratcher, especially if you know your company and its goals. One savvy approach to securing equipment for the long term is by exploring the option of equipment leasing.
If your end goal is equipment ownership, then this is a great option to consider. Many businesses lease their equipment because it operates very similar to traditional financing.
In this article, we’ll delve into the benefits and considerations that make equipment leasing a smart choice for your business as you gear up for the coming year.
In this article…
- Understanding Equipment Leasing
- Benefits of Leasing to Own Equipment
- How to Qualify for Lease-to-Own
Understanding Equipment Leasing
A Lease-to-Own Program works best for businesses that want to own their equipment at the end of their lease. The best way to explain lease-to-own payment plans is to compare them to a traditional lease. With a typical lease, you’re essentially making a monthly payment to use the equipment with the intent of returning it after a set period.
Lease-to-own payment plans have a monthly payment, like a traditional lease, but allow you to work toward ownership.
Rather than returning the equipment when the agreement ends, ownership is transferred to you. Lease-to-own payment plans have a monthly payment similar to a traditional lease, but the payments are often lower due to the end-of-lease purchase option.
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Popular End-of-Your-Lease Buyout Options
$1 Buyout
- The lessee pays the bank $1 at the conclusion of the lease term.
- Ownership (or the title) is transferred from the bank to the lessee.
10% of Original Purchas Price
- The lessee pays the bank 10% of the original purchase price of the equipment.
- Ownership (or the title) is transferred from the bank to the lessee.
Fair Market Value (FMV)
- The equipment is compared against the current fair market value of that equipment.
- The lessee has the option to pay that amount in order to have the title transferred or return the equipment.
Often, people assume their purchase option is in addition to the total cost of their equipment. In reality, a purchase option lowers your monthly payment and out-of-pocket costs.
Owning equipment outright while it retains value is a huge benefit if you want to trade your equipment in for a newer model or even upgrade to a larger more multi-functional asset. This allows your business to perform additional functions. This equity will help to mitigate future costs of funds.
Buying Equipment vs. Leasing
Pay Cash
|
Lease-to-Own
|
 Own the equipment immediately |
Own the equipment at end of lease |
| Tax savings |
Tax savings |
| Works for start-ups |
Works for start-ups |
| Low financial reporting |
Low financial reporting |
| Convenient |
Convenient |
 It doesn't help build credit |
Build up business credit |
| Limited price flexibility |
Flexible payment options |
| No upgrade options |
Easy upgrades |
| Pay sales tax upfront |
Deferred sales tax |
| No way to conserve cash |
Liquidity |
| Pay in full at the time of purchase |
Low down-payment |
Benefits of Leasing to Own Equipment
Choosing a lease-to-own program when getting equipment for your business has the following benefits:
- Tax deductions: Your business may be able to write off the lease payment each tax year.
- Equipment ownership: Own equipment that pays for itself over time.
- Flexibility: From term length to buyout options, choose the plan that allows for maximum growth and profitability.
- 100% Financing: Unlike bank loans, qualified businesses can finance their entire purchase without a 20% down payment.
- Maintain Liquidity: Conserve cash for times when you need it most.
- Mitigate Risk: Use your equipment to earn incremental revenue to cover the monthly payment.
- Long-Term Profitability: Lifespan of equipment surpasses length of its lease, ensuring a continual profit.
- Budget Friendly: Spread out your equipment cost into low monthly payments.
How to Qualify for Lease-to-Own
Now that you’re considering the advantages of a Lease-to-Own Program for your equipment, understanding the qualification process is crucial.
To ensure a smooth application and approval, follow these steps:
Assess Your Creditworthiness
Before diving into a Lease-to-Own Agreement, lenders will assess your creditworthiness. This involves evaluating your credit score, financial history, and business stability. While a higher credit score can increase your chances of approval, some lenders may also consider alternative factors, such as your business’s cash flow and profitability.
Business Financials
Prepare your business financial statements, including income statements, balance sheets, and cash flow statements. Lenders often review these documents to gauge the financial health and stability of your business. Clear and well-organized financials can instill confidence in potential lessors.
Equipment Information
Provide detailed information about the equipment you intend to lease and eventually own. This includes the make and model, condition, and the intended use of the equipment. Lenders want to ensure that the equipment has a sufficient useful life and will retain value over the lease period.
Down Payment Considerations
While lease-to-own programs typically offer lower initial costs compared to outright purchases, some may still require a down payment. Assess your budget and be prepared to make a down payment if necessary. A larger down payment can sometimes enhance your overall terms and approval chances.
Business Plan and Purpose
Outline your business plan and explain how the leased equipment fits into your overall strategy for growth. Lenders want to understand the purpose of the equipment and how it aligns with your business goals. A well-defined plan can strengthen your case during the approval process.
Length of Lease Agreements
Consider the desired length of the lease agreement. While longer terms may result in lower monthly payments, it’s essential to align the lease duration with the equipment’s expected lifespan and your business’s long-term needs. Be prepared to discuss and negotiate the lease term with potential lessors.
Communication with Lenders
Maintain open and transparent communication with Beacon Funding. If you have unique circumstances or challenges, discussing them upfront with your financing consultant can help us tailor a solution that meets your specific needs. Clear communication builds trust and can positively influence the approval process.
By addressing these key factors, you can position yourself for a successful qualification for a Lease-to-Own process. Reach out to Beacon Funding to discuss your individual situation and explore your options.
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