When beginning a business, there are many things you must consider. The largest consideration is funding. Here is how you can launch strong with start up business equipment leasing.
Starting a new business venture on your own can be nerve-racking. There are a million things to juggle, and half a million plates to keep spinning. Start ups represent an immense personal, logistical, and professional challenge, putting everything you know and can do to the test as you try and establish yourself in an established niche or industry, or, even harder, carve out a brand-new niche for yourself in your area.
While a lot of the earliest questions surrounding a business launch revolve around personnel, branding, and marketing decisions, the most important topic is money. Whether you’re working with investment capital, a loan, your savings, or a bit of everything, staying within the budget and making sure it lasts long enough to break even is the make-or-break point for any start up. Can you achieve lift off before the cash runs out?
Cutting costs wherever possible is one of the only ways to keep enough around to survive and scale up in the weeks and months to come. Sometimes, that means compromising on space and comfort, without sacrificing quality on the consumer or client’s end of things. But when that isn’t cutting it, you need to decide where else you’ll find the money.
One way to cut your upfront costs immensely is to consider business equipment leasing options over equipment loans or outright purchases.
Why Lease Business Equipment?
Every startup needs equipment, whether you’re touching up sports cars, 3D printing machine parts, or setting up your first restaurant. Even tech firms need to put a lot of capital into office equipment, online infrastructure, and multiple workstations. You can lease server space and computers alike, get a loan for the furniture, and save your capital for other costs with much less flexibility, such as marketing costs and payroll.
Leasing is preferable to an equipment loan whenever the equipment in question is something you don’t plan on keeping around for more than a few years. It makes sense to get an equipment loan for a major purchase of an essential component in your production line, like welding machines, industrial plasma cutters, or CNC machines.
But in industries where a piece of essential equipment becomes outdated in five to ten years, a business equipment lease lets you shave off the upfront cost of an outright purchase while opting for top-of-the-line equipment, with the option to upgrade whenever necessary.
There are a few other benefits to leasing over loans or equipment purchases. Leases provide you with greater financial flexibility, lower upfront costs, far lower credit requirements, and unique tax benefits.
The Importance of Start Up Business Equipment Leasing
Any purchase a business makes is never made in a vacuum. Money invested in one place is money not invested in another. Whenever you move your funds, you’re making not only a conscious decision to build your business in a certain direction, but you’re locking other doors of opportunity – hopefully, for the best possible choice.
A lease keeps as many of those doors open as possible. Leasing whenever possible means saving capital for other expenses where your options for long-term credit are scarce. And that’s the great thing about start up business equipment leasing in particular – it’s much easier to lease equipment than any other kind of investment.
The equipment itself serves as collateral, and the credit requirements for a business equipment lease are much lower than many other kinds of leases or loans.
Of course, there are certain kinds of equipment where leasing isn’t the best possible choice. It’s cheaper to outright buy low- to mid-price equipment than lease it for an indefinite period.
There are also certain types of equipment where an older second-hand model can put in just as much work as a newer one, giving you the opportunity to invest in something much cheaper and much more functional, versus leasing a brand-new piece of equipment that might be marginally better.
Leases Have Fewer Requirements
In addition to preserving your cash flow, another benefit of choosing to lease your business equipment as a start up is that you can typically do so with a lower credit requirement than other financing options.
This is important because a lot of financing options require you to prove that your business has an active revenue stream and has continued to successfully operate for some time.
While leases do require you to disclose your finances and ensure your financial viability, the requirements are often lower. Some requirements are universal, though, such as having no recorded bankruptcies in the last seven years, as well as no ongoing unresolved liens.
Start Up Business Equipment Leasing Won’t Impact Your Personal Credit
New business owners are often putting a lot of personal investment into their start ups. The idea is to get off the ground as quickly as possible, and that means pooling your savings and often your own credit to try and finance your business.
To that end, it’s important to note that business equipment loans and business equipment leasing has no negative impact on your own personal credit. Your business leasing and term loans are independent from your credit score. This means leasing ultimately gets you access to high quality equipment without:
- Upfront fees
- Down payments
- Personal credit impact
- Unrelated hard collateral
- Commitment to one piece of equipment
Business Equipment Leasing Isn’t Only for Start Ups
Start ups benefit the most from a financial strategy that helps preserve short-term capital and takes every possible advantage of the ability to invest in the business at a low upfront cost. While most term loans, for example, require a down payment, leases usually only offer the ability to provide a down payment for a reduced monthly rate, but don’t require it. This means established companies can preserve their cash flow for other costs while leasing equipment they might only need in the short-term.
The construction business is a common example, where trucks, concrete mixers, and other heavy-duty equipment is leased for a big-ticket job, versus owning an entire lot’s worth of equipment that spends most of the time being unused. Farmers might lease more tractors and other equipment to help during harvest season, while requiring less equipment during off-seasons.
The cost-to-reward ratio for any lease, loan, or equipment purchase depends on several different factors. It is always a good idea to consult a qualified accountant and weigh your options, both in the short- and long-term.