Running a business in any industry requires equipment. You might need machinery to create a product, vehicles to get to clients, or even simply need financing to set up a computer network for your business. Purchasing necessary equipment outright can be too expensive for many small business owners, which is why equipment financing is such a popular option.

Financing, Leasing, and Lease-to-Own

Though some people use the terms interchangeably, financing and leasing equipment are not the same thing. If you intend to use financing, you are probably looking for new equipment. Financing new equipment means you receive funding, use it to purchase the equipment in your name, and then repay the lender. When you lease equipment, it may or may not have been previously leased. The equipment is in the lender’s name, but you pay to rent it. When the lease is up, you can choose to sign a new one or return the equipment.

There is also a lease-to-own option that some lenders provide. This plan works like the traditional leasing plan for the duration of the contract. The difference is the payments. Monthly payments are lower, but you’ll pay 10-20% of the equipment cost at the end of the lease terms rather than re-sign a contract. Once paid, the lender signs the equipment over.

Choosing a Term Length

The term length is the duration of your payment plan. In most cases, it will be 3-5 years, but some lenders will make the terms shorter or longer based on your needs. Keep in mind that shorter terms often mean higher payments. If you need low monthly payments, longer terms allow for that. If you aren’t sure how your profits will be because you are just starting out, you might want to start with a long term length. Some lenders allow you to renegotiate your lease as time goes on.

Understanding Flexible Financing

If you choose to go the equipment financing route, you’ll quickly learn that many lenders use the term “flexible financing.” All this means is a plan customized to meet your needs. Some places allow you to defer the first few payments while you use the equipment to start turning more of a profit. Other lenders provide 100% financing, so you don’t need to put any money toward the equipment upfront.

Other options include “skipping” payments or using a step payment method. Skipped payments are tacked onto the end of your term length, while step payments allow you to pay higher payments as your lease goes on and you begin making more of a profit.

Whether you choose to finance or lease the equipment your business needs, do so through a reputable lender. Verify licenses, ensure good standing with the Better Business Bureau, and talk with your industry peers to determine which lenders have good reputations.