Other financing options vs. equipment leasing
Leasing isn't the only option available to you. It's certainly not the most common. Some of the best business loans are designed to meet the equipment requirements of small businesses. Equipment financing can also be done with lines of credit and factoring services.
Loans for businesses
Business loans, like purchases, give you more ownership of the equipment. With a lease, the lessor retains ownership of the equipment and gives you the option to purchase it at the end of the term. A loan allows you to keep the title to any items you buy while also securing the purchase with other assets.
Unfortunately, one of the most significant disadvantages of a loan is its terms. Unlike a lease, which has a fixed rate, the interest rate on a loan or line of credit can change over time. Depending on the size of the loan, this could make budgeting difficult. Furthermore, banks and other lenders frequently demand a much higher down payment – as much as 20% of the total equipment cost, according to some estimates.
Factoring is another option for purchasing expensive equipment, and it is often faster than applying for a loan. By leveraging your accounts receivable, you can quickly convert outstanding payments into cash by selling these invoices to a factor. Factoring is an excellent alternative to leasing and loans for startups and small businesses, often paying up to 90% of the total value of your accounts receivable – depending on the creditworthiness of your customers.
Typically, funding is available within a few days. As a result, factoring has become a popular resource for smaller manufacturing operations, the transportation industry, and businesses that frequently handle contracts with short turnaround times.