Is leasing a better option for business compared to purchasing equipment? What is the current interest rate on equipment leases?
Every year, numerous entrepreneurs, armed with the knowledge of their work experience and a desire to do more with their career, attempt to start up their own companies. This is not an easy feat because not only do they need to make a name for themselves and their business, but there are also many other factors to their business besides their career.
Getting a good location, finding the right equipment, hiring decent employees, and advertising their presence are just a few of the many things businesses need to do. Perhaps one of the toughest parts of any business, but especially newer ones, is managing finances so your business stays afloat.
When your company starts up, your business has so much to pay for, like your building, equipment, fees, licensing and more, and handling all of this can be tricky. Having a way to reduce your expenses while maintaining an efficient level of service is critical, and one of the best ways to do that is by acquiring your equipment without draining too much of your capital.
Depending on your equipment and other factors, is leasing or purchasing your equipment the best move? If you can’t purchase your equipment, should you take out a loan to afford it? What is the current interest rate on equipment leases versus loan interest rates?
What you purchase and what you lease is dependent almost entirely on what equipment you need; for instance, if your business, for whatever reason, doesn’t need a lot of hardware and most of it is smaller, there’s no reason not to purchase it. You’re not wasting a lot of capital on it; plus, you get the benefit of claiming the equipment as a business asset and get some funding for the hardware.
It’s when you need heavy duty equipment that things get slightly trickier; for example, restaurants that need ovens and grills, and fitness centers that need gym equipment. In these cases, each piece of hardware is an expensive initial buy, but what most people forget is your first purchase on equipment is never your last.
Over time, all equipment will break, normally to the point where replacement is the better option. Repair is oftentimes very short term or it’s just expensive, and it’s more financially wise just to pay for the equipment again and replace it.
That means that not only do you pay a huge chunk of your capital to purchase the hardware, but a few years down the road, when you’re not necessarily on your feet financially, you have to make the same payments again.
The Interest Rate on Purchasing Equipment through Loans
If you can’t handle purchasing equipment, is it better to stall it off further by taking out a loan and paying it off later with interest? The interest rate depends on both your credit and the bank you go to, but an interest rate is still a percentile of what you loan.
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This means that, depending on how much you loan, the amount you pay in addition to the loan can be quite large or small. That’s why, with a loan, it’s best to do some math and make sure you can actually pay back whatever you’re loaning, and then some, in a reasonable time.
Imagine you took out too much as far as your loan, and you spent it on equipment. Not only is that interest rate accumulating a lot of debt for you, but when your equipment needs to be replaced, you may not even have the money to pay for it, stalling you paying off the loan that much longer.
What is the Current Interest Rate on Equipment Leases?
The reason leasing is so convenient for companies is that it quells all of the disadvantages that come with purchasing equipment. A lease is a contract that allows you to loan a set amount of equipment for a monthly rate.
Unlike loans, the rate is flat, and unlike purchasing, the rate is low, meaning you can pay for the equipment you’re leasing in low, reasonable payments. As far as what is the current interest rate on equipment leases, the answer is that there is no interest rate; you pay the same rate throughout the lease.
Plus, with leasing, you can get your equipment repaired/replaced without having to pay expensive fees to do so, and you can get upgrades in your lease as well. To learn more about what is the current interest rate on equipment leases, click here.