Equipment leasing is a form of financing that gives a business access to an item of equipment including machinery, computers, and vehicles without buying it outright. These leases are typically available through manufacturers, dealers, banks, and other financing companies. Of course, a monthly payment, including interest, is scheduled. At the end of the lease period, the lessee must renew the lease, return the equipment, or simply purchase it.

Equipment leasing comes in two primary forms:

  • A capital lease, where the leased equipment is placed on the balance sheet, with the intent that the equipment will become owned at the end of the lease period. Monthly payments tend to be higher with a capital lease.
  • An operating lease (or fair market value lease,) where the equipment is typically intended to be used and upgraded periodically as with computers and copy machines, for example.

Why Do Companies Use Equipment Leasing?

Equipment leasing offers these benefits:

  • Purchasing power is improved by essentially renting more or higher quality equipment than might be possible through an outright purchase.
  • No down payment is required; it comes with 100 percent financing.
  • Better balance sheet management is facilitated.
  • Asset management is improved; the equipment is used for as long as needed and then the equipment is returned to the lessor.
  • Leases can be structured to include installation and maintenance.
  • Upgraded technology is made available.
  • Leasing tax treatments can benefit the company’s profit picture.

The two primary cons of equipment leasing are that it is more expensive than purchasing, and at the end of the lease, the business may not own the equipment.

How to Apply for Equipment Leasing

Use these tips to apply:

  • Research the equipment that you are planning to lease.
  • Evaluate your qualifications for approval, including business history and credit score.
  • Evaluate potential sources of leasing.
  • Gather the required documents and apply for equipment funding.

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