Unfortunately, startups don’t have a lot of financing options because a new business hasn’t built up a track record yet. One type of financing that startups are often eligible for, however, is equipment leasing. This is because, in addition to their credit, the equipment serves as collateral. In this article, we’ll explore what a startup needs to qualify for equipment leasing, the typical terms and cost of equipment leases, and the benefits of equipment leasing for new businesses.
How Can a Startup Qualify for Equipment Leasing?
Equipment leasing is available for a wide range of equipment, including restaurant, salon, and medical equipment, trucks and other business vehicles, computers, and more. A new business will usually need the following to qualify for equipment leasing:
- – A good credit score, preferably above 650
- – No credit red flags, such as a recent bankruptcy or tax lien
- – Proof of business (e.g. a business license, articles of organization for an LLC, articles of incorporation for a Corp., or other valid documentation)
- – A quote for the equipment from an authorized equipment seller with specs, model, & manufacturer information
New businesses that meet the above requirements can qualify for up to 100% financing, but this is rare. In most cases, you will have to put up at least 10% of the cost of the equipment on your own, and often times more than 10 percent. In addition to the above factors, the amount of financing you will qualify for also depends on the type of equipment you are leasing, the industry your business operates in, and the equipment depreciation value.
What Types of Leases Are Available?
There are two types of leases that a small business, including a startup, can qualify for. The first is called a capital lease, the most popular example of which is a $1 buyout lease. This is for business owners who want to make monthly payments throughout the lease term and at the end, purchase the equipment for $1. A buyout lease is not too different from an equipment loan. It’s best for durable, long-lasting equipment such as vehicles and tractors.
The other kind of lease is an operating lease, the most common example of which is the fair market value lease. This kind of lease has lower monthly payments than the $1 buyout lease, but if you want to purchase the equipment at the end of the lease, you’ll have to pay the fair market value. This is best for business owners who want to rent equipment, such as computers or medical equipment, for a short period of time and don’t intend to purchase it at the end.
Your lender will help you choose which type of lease would be best for your business. We also recommend that you always consult your tax advisor when selecting a lease structure.You can read more about different types of leases in this Ultimate Guide to Equipment Leasing.
What are the Typical Terms and Cost of Equipment Leasing?
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Equipment leasing allows you to spread out the cost of equipment over a number of years, so you don’t have to pay the full cost upfront. The terms of your equipment lease will vary based on the following factors:
- – Strength of your credit score and application
- – Type of equipment and value of the equipment you are leasing
- – Type of lease (fair market value leases have lower monthly payments, but you have to pay more if you want to own the equipment at the end of the lease term)
Most equipment leases are for 2 to 5 year terms, and for new businesses, lenders typically charge around 5-20% interest. In just 90 seconds, you can see and compare real quotes from over 70 real lenders, with no impact to your credit score. Simply complete the simple online application click here. If you haven’t formed your business yet, you can estimate your approximate monthly payments using this Equipment Lease Calculator.
Benefits of Equipment Leasing for New Businesses
Leasing offers startups an excellent opportunity to obtain vital equipment without using up all their capital. With equipment leasing, there are numerous benefits:
- – A wide of variety of equipment can be leased. Whatever type of equipment you need, chances are you’ll be able to lease it! Everything from salon equipment to restaurant appliances to vehicles to computers can be leased.
- – Tax benefits. If you have a capital lease, such as a $1 buyout lease, you can use a deduction called the Section 179 deduction to deduct the entire cost of the equipment (up to $500,000) on your tax return in the year of purchase. This can amount to a huge savings on your tax bill. If you go with an operating lease, you cannot use Section 179, but you can deduct your monthly lease payments as a business expense.
- – Insurance and maintenance. While every equipment leasing arrangement varies, the leasing company often takes care of insuring and repairing the equipment if it breaks or stops working.
- – Build business credit. Equipment leasing is a great way in the door for startups because the leasing company will often report your payments to a business credit bureau. This allows you to build up your business credit score, which can in turn make it easier to later obtain additional financing at low rates.
A startup cannot get into business without the equipment it needs to serve its customers. Leasing allows a startup to obtain essential equipment with a reasonable cost and tax benefits. If the equipment you need enables you to comfortably service the monthly lease payments, equipment leasing may be just the jump start your business needs to grow to the next level.
What’s the next step? You can readily find out what equipment leasing options are available to you by filling out this online form. In a matter of minutes, you’ll be able to compare quotes from over 70 real lenders. This won’t affect your credit score, so why wait? Go ahead and find out what equipment leasing options are available for your startup by clicking here.