Commercial Equipment Leasing – Guide + Financing from $10 Million
September 26, 2020
Many businesses turn to commercial equipment leasing to finance the equipment they need for their operations. Leasing offers several advantages over outright purchases and commercial equipment loans. In this article, we explain commercial equipment leasing and how Assets America© can provide you with the financing you need. We can help you quickly finance your commercial equipment deal, starting at $10 million with no cap.
What is Commercial Equipment Leasing?
Commercial equipment leasing is a type of commercial equipment financing. In its simplest form, commercial equipment leasing allows you to rent equipment for a set period of time with minimal upfront costs. Once the lease expires, you have a variety of options, as explained below.
Commercial facilities include manufacturing machinery, devices, flow lines, automated equipment, and robotic equipment used by commercial businesses. These businesses include wholesale, retail, manufacturing, and food service businesses. Commercial facilities also include equipment for operating supply depots and warehouses. Functions of commercial facilities include:
Display Mining Processing Loading Mining Processing Sales Storage Transport Unloading Weighing Manufacturing
and other functions performed by commercial operations.
Most of the equipment that you can buy can also be leased. Startups and young businesses prefer leasing as it is less of a cash outflow.
How Assets America® Can Help You
If you need at least $10 million in commercial equipment financing (up to 100% financing), trust Assets America®. We can get financing in place quickly versus months with typical funding sources. Be smart and arrange all your financing through Assets America®. Call us now at 206-622-3000 or fill out the form below and we'll get back to you right away.
Apply for a Commercial Equipment Loan
How does commercial equipment leasing work?
An operating lease is the most common form of commercial equipment lease. With an operating lease, you have the use of the equipment but you don't have ownership. Instead, the leasing company (or leasing company) or financial institution retains ownership. Commercial equipment acquired under an operating lease typically doesn't appear on the balance sheet.
A lease-purchase agreement or lease option allows a company to purchase equipment instead of returning it to the leasing company. With a closed-end lease, you return the equipment at no additional cost. Conversely, an open-end lease has lower monthly payments and specifies a final lump sum payment.
There are a variety of commercial equipment leasing companies, including:
Alternative Finance Companies Banks Brokers Distributors Equipment Dealers Leasing Companies
The cost of leasing and borrowing equipment is roughly the same, depending on the term of the agreement, i.e. how long the contract is. The cheapest way to own is to buy outright, since you don't have to pay interest. However, buying outright can drain your cash, preventing you from undertaking other capital projects or preventing you from getting paid. However, if you plan to use the equipment for many years, buying outright is your best bet, followed by debt financing.
Leasing makes sense
Leasing makes particular sense if you only need the equipment for a relatively short period of time, if it will become obsolete quickly, or if you really need to conserve capital – the latter being the most common case.
Commercial equipment types include:
Agricultural Equipment Automotive Equipment Communication & Telephone Equipment Computer & Technology Equipment Fixtures & Racks Forestry & Logging Industrial & Manufacturing Equipment Landscaping Equipment Machine Tools Material Handling Equipment Medical & Healthcare Equipment Office Furniture & Equipment Printing Equipment Restaurant & Hospitality Equipment Software Trailers Transportation
Commercial Equipment Financing Requirements
If you choose to finance your equipment purchase with a loan, the following requirements will apply:
Ideally, you'll need a credit score of 680 or higher. You'll need to be able to prove that you've been in business for at least a year. You'll need a down payment of at least 10% to 25%. You'll need to prove that you have enough cash flow to repay the loan. Additionally, you'll need to have no prior bankruptcies, no criminal history, and no current fraud charges. You'll need to provide the appropriate documentation, such as financial statements and tax returns.
Leasing and Loans
You can lease or opt for a commercial equipment loan. In many cases, leasing is the better option, especially if you want to preserve and maintain a capital reserve.
lease
Leasing is a great option if you simply want the use of equipment without the additional costs of ownership. Leasing requires no down payment and allows you to immediately expense monthly lease payments. The equipment is off-balance sheet, so it doesn't affect book value. For high-end equipment, leasing companies often require service and maintenance payments within the lease agreement to maintain the value of the equipment.
Leasing commercial equipment offers the following benefits:
Affordable: Leasing requires less cash. No down payment or purchase price for a loan is required. Often, monthly rental rates are lower than the debt service on the loan. This of course depends on the buyout clause and residual value at the end of the lease. Flexibility: Leasing frees up capital for other uses. This is useful if you need to run payroll, buy inventory, or pay for operating expenses. Stay Current: When you lease commercial equipment, you can often quickly replace it with new, modern equipment at the end of the lease. If you buy the same equipment, you may be stuck with outdated and inefficient equipment. In that case, you will have to spend money on upgrading or sell it as scrap. Again, this depends on the type of equipment and how quickly such equipment becomes obsolete. Expense and Depreciation: Rental expenses are immediate, as are tax deductions. Owned equipment must be depreciated over several years. Thus, leasing can offer good tax benefits compared to ownership. Speed: Leasing can generally be arranged/financed much faster than a typical equipment loan. Slow-moving businesses may find it difficult to survive. It is important for your business to stay lean, efficient and agile. Maintenance Costs: You may be able to get maintenance contracts for leased equipment at prices that are more reasonable than your own maintenance costs.
loan
If you finance your purchase with a commercial equipment loan, you'll need a down payment, usually 20% or more. Loan interest rates usually range from 3% to 30%, but this depends heavily on how long you've been in business, your credit score, cash reserves, net operating profits, and more. You can deduct interest and annual depreciation, as well as repairs and maintenance costs. You have the equipment asset and the loan liability on your balance sheet, the exact opposite of leasing equipment. The value of the equipment at the end of the loan will fluctuate. In some cases, you may have to sell it for scrap.
A commercial equipment loan offers several advantages over leasing, including:
Reduced Costs: If you buy instead of leasing, you don't have to compensate the leasing company for equipment obsolescence. The leasing company will include the cost of obsolescence in the lease payment requirements. If you buy, you incur that cost yourself, which reduces your cash outflow. Modification of assets: You usually can't modify equipment that you leased. However, if you own the same equipment, you are free to change or modify it as needed. Termination early: Equipment loans can usually be prepaid without penalty. However, you can be sure that you will have to pay a very exorbitant amount if you terminate the lease early. Collateral: Once paid off, the equipment can be used as collateral for other loans. The leasing company cannot use leased equipment as collateral. Since the equipment secures the loan, lenders are not as picky. Restrictions: A lease may prevent the leasing company from using the equipment in a certain way. If you own the equipment, there are usually much fewer usage restrictions. Excess cash: If your business is a cash cow, you can take advantage of excess cash by purchasing equipment outright or on a loan. Section 179: You can accelerate the depreciation of a financed asset if it meets certain parameters. In 2020, you can get 100% bonus depreciation on equipment purchases.
Video: Should you lease or buy equipment?
Equipment Leasing and Loan FAQs
How do you know if your commercial equipment needs replacing?
Typically, you will notice an increase in maintenance costs. Or your commercial equipment may be outdated and incurring the opportunity cost of inefficiency. If your equipment is leaking or making strange noises, it may be time to replace it.
What commercial equipment does AAI finance?
As long as the total value of the equipment is at least $10 million, we are flexible and can arrange the loan quickly with less hassle and paperwork. Of course, we will not finance equipment that will be used for illegal purposes.
What are the advantages and disadvantages of vendor financing?
The advantages are low upfront costs, convenience, easy upgrades, and very attractive deals. The disadvantages are that vendors may have equipment that is temporarily unavailable, and loans may be too costly compared to other sources of funding.
Does Assets America also lease vehicles?
Not directly, but we will finance the purchase of a fleet of vehicles totaling a minimum of $10 million, and then we will facilitate the sale-leaseback of the vehicles, allowing you to lease them instead of owning them.