Startup capital leasing, if done correctly, can help your business in more ways than you can imagine.
Instead of purchasing equipment for your startup, you can lease it. Under a lease contract, you pay a monthly fee to use it. You can get all types of equipment for your business ranging from smaller equipment such as computers to major manufacturing equipment through an equipment lease. You can acquire an equipment lease from major finance companies or from banks. Equipment dealers and manufacturers also have leasing programs in place that can benefit your business.
Which Startup Should Use Equipment Financing?
You can explore startup capital leasing if you need a lot of expensive equipment but you do not want to tie up large sums of money on down payments required by purchasing.
Equipment financing is also suitable for your business if you need to upgrade your equipment frequently. This will spare you the agony of tying up capital in soon-to-be obsolete equipment.
If you have cash flow that can cover monthly lease payments for the equipment that you need but you do not have enough money to lay out for a cash purchase, then startup capital leasing could be the best solution for your business.
When Is Startup Capital Leasing The Best Choice For Your Business?
Startup capital leasing is the best for your business when:
- Your principals have strong credit ratings
- you stand to save on taxes
- you don’t get approved for a loan by the bank
- you have bulk orders but you fill them because you lack the equipment
When Should You Avoid A Lease?
Leasing may not be the right thing for your business if:
- you have enough money to purchase the equipment that you need
- the cost of leasing the equipment is substantially higher than the cost of purchasing
- you can use your line of credit to pay for the acquisition of equipment
- when the tax benefits for purchasing are more than those for leasing
How To Get Approved For Equipment Financing
Equipment leasing comes with a certain type of flexibility that is hard to match with any other way of acquiring equipment for your business. This is why most businesses try their level best to increase their chances of getting approved for a lease. The following are a few tips that you too can use to get approved.
1. Have A Business Plan
Leasing companies love the idea of giving startups a chance but they also want to know if you have any experience. Make sure that you emphasize your success and experience in the industry in your business plan
2. Make Sure The Leasing Company Leases To Startups
One common mistake that many startups do is to send out applications to several equipment leasing companies hoping that one of them will approve their application.
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Unfortunately, not all leasing companies finance startups so allowing them to pull your credit only for them to reject your application will only hurt your credit score.
3. Find Out What End Of Lease Options You Have
Talk with your leasing company and find out what end of lease options you have. Can you purchase the equipment at the end of the lease period? Can you renew the lease or return the equipment?
4. How Long Will You Use The Equipment?
Think about how long will you use the equipment before it becomes outdated? Computer equipment, for example, gets outdated very quickly due to technology changes while kitchen equipment or bakery equipment can be used for more than five years without getting outdated.
Drawbacks To Leasing
Startup capital leasing has many drawbacks. Some of them include:
- you cannot apply for a future loan and use the leased equipment as collateral
- interest rates for leasing can be very high
- you may get yourself into a lease term that is longer than the life expectancy of the equipment
- you can trigger a repossession if you miss one payment
- it may hard for you to get out of your lease since most of them are long term
- leasing involves a thorough examination of your credit history
The good news is that you can avoid all these drawbacks by simply hiring a leasing professional to go through your lease agreement. This way, they will identify any loop holes and negotiate better terms for your lease.
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