Industries such as construction and manufacturing rely on heavy equipment. While that can make for some expensive purchases, the three financing options covered in this post can make getting the equipment your company needs feasible.
In the case of an equipment loan, the borrower uses funds from a lender to purchase heavy equipment. The borrower keeps the equipment at the end of the loan. The equipment typically serves as collateral while the loan is still being paid off.
An operating lease is another form of heavy equipment financing. Unlike an equipment loan, however, an operating lease does not lead to ownership of the equipment for the company using it. The lessor retains ownership of the equipment throughout the term of the lease and at its conclusion. The lessee essentially rents the equipment.
Capital leases are similar to loans in some respects and operating leases in others. According to The Balance, in a capital lease, the lessee is treated as the owner of the equipment. In terms of accounting, the lessor treats a capital lease as a loan. In some cases, by the end of the lease, the equipment title will automatically pass to the lessee. Other versions include a purchase option for the lessee.
Generally speaking, if your company will need the equipment for a very long period of time, then an equipment loan or a capital lease that transfers ownership to your company may be the way to go. For shorter-term equipment use, consider an operating lease, which will allow your company to move on to new equipment if desired. Your lender can go over your options and the specific terms of each to help you decide which financing option is the best one for your situation.
If you want more information on financing and other topics related to business, check out Aspen Commercial Lending‘s other blog posts.