| Equipment Financing vs Equipment Leasing |
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Equipment Financing
With equipment as collateral, institutions lend at lower rates (sometimes by 100 to 300 basis points) and longer terms than unsecured financing.
Typically, equipment financing extends anywhere from 7 to 10 years (based on the residual value) compared to an unsecured business line of credit term of 2 to 5 years. Also, with equipment financing, business owners can claim depreciation on taxes. Equipment financing gives borrower’s the option to choose between a floating and a fixed rate loan product and does not require line rotation. Equipment Leasing
Equipment leasing provides financing for all types of movable personal property (defined as anything other than real estate) to qualified commercial businesses. The equipment lease is a non-cancelable contract, extended for a specific period of time (typically one to five years.) Title to the equipment is vested in the Lessor and/or its assigns. In return for periodic rental payments, the Lessee has unrestricted use of the equipment throughout the duration of the contracted period and any renewal periods that extend thereafter.
Equipment leasing contracts require the Lessee to maintain, repair and insure the leased equipment during the leased period. The Lessee is also responsible for all taxes, license fees, and similar charges imposed upon the property or payments under the lease. Normally, the lease does not commence until the equipment has been delivered and is in operating condition. After approving equipment delivery and condition, the Lessee sends a formal certificate of delivery and acceptance to the Lessor. The lease begins when the Lessor receives the certificate. Equipment leasing payments are structured monthly. |