Financing heavy equipment is an option that many companies choose when they do not have enough money to make an immediate purchase. There are, however, some lies/myths that make them believe that financing is not for them.
Lease financing heavy equipment is basically taking a loan in which a lessor purchases and owns the equipment and then rents it out at a monthly rate for a specific number of months. At the end of the lease, you can choose to return the equipment to the leasing company, lease new heavy equipment, renew the lease or purchase the equipment. There are however a few myths doing rounds in the leasing industry which, unfortunately prevent many companies from financing their equipment. These myths shall be unearthed here.
Myths About Financing Heavy Equipment
The Financial Condition Of A Business Will Determine If It Is Eligible For A Lease
This is in fact not true because any business can finance heavy equipment at any time regardless of its financial status. Leasing is a financial decision that makes a lot of sense for all kinds of companies including government institutions and Fortune 500 companies. Any business at any stage of development can benefit from lease financing.
Taking A Loan Is Better Than Lease Financing
Most people think taking a loan from a bank is a better option when compared to leasing. This is partly because when you purchase your heavy equipment using the loan, you get to own it immediately while with a lease, you don’t own the equipment. However, you can still own the equipment if you sign a lease to own agreement where you purchase the equipment at the end of your lease.
Furthermore, taking a loan will only make you a victim of sky rocketing interest rates. There was a time in the 1980s when interest rates in banks rose from 9% to 20% in just one year. This is something that you cannot expect to happen with leasing.
Lease Financing Is For People With Perfect Credit Scores
A good credit score will give you the upper hand when you are negotiating for better terms in your lease. It will also increase your chances of being approved for a lease but it does not mean that you cannot be approved for a lease if you have damaged credit. Many leasing companies out there have designed programs that accommodate people with damaged credit. They might charge you higher interest rates but they will still approve your lease application. Furthermore, there are many other factors that can make you eligible for a lease if you have damaged credit such as the amount of time you have been in business, your average business checking balance and comparable business credit.
Leasing Is Complicated
This cannot be further from the truth but qualifying for and completing a lease transaction is easier than traditional bank financing.
You Can Only Lease “New” Heavy Equipment
The truth is you can lease new, used and even refurbished heavy equipment. Many people assume that you can only lease new equipment but you can take with your lessor and come up with terms and restrictions that suit your needs. If you prefer used equipment that has not been used for more than a year, you can talk to your lessor so that they can make proper arrangements.
Traditional Financing Is Cheaper Than Lease Financing
More often than not, lease financing heavy equipment is much cheaper than traditional financing. Upfront costs are usually payments for the first and last month, which is, typically a small amount to pay when compared to traditional financing.
It Is Better To Just Purchase The Equipment And Own It
While this might be true, you have to consider how long you plan to use the equipment. If for example, you have a seasonal business, such as farming, you may want to use the equipment for only a short period. In this case, leasing would make a lot of sense because you can return the equipment back to the leasing company at the end of your lease. If, however, you plan to use the equipment for a long time, then you can make a cash purchase. If your equipment needs to be upgraded on a regular basis, lease financing would be a better option because you won’t have to worry about the costs that come with upgrading to new models.
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