Equipment financing is the process of obtaining business equipment using a loan or lease. Equipment financing loans allow you to purchase the equipment with payments made over time, similar to using an auto loan to buy a personal car. Equipment leasing, on the other hand, gets you the equipment you need without the intention of owning it. You’ll make a regular lease payment to continue using the equipment as if it were your own. When the lease is up, you can give the equipment back or renew the lease. Sometimes you may have options for purchasing the equipment at the end of the lease.

Equipment financing works by providing you with the equipment your business needs for a periodic payment which includes interest. After the set term of months for your loan or lease is over, you’ll either own your equipment outright or will need to decide about your lease. Generally, you can renew your lease if the equipment is in good condition and still helpful to your business. You can finance almost any type of major equipment your business needs to run smoothly, expand and maintain competitiveness.

Equipment financing pros and cons.

Here’s a brief summary of the different factors you’ll need to consider if you’re thinking about financing equipment for your business:

Pros of equipment financing

Can help you build business credit

Can be an affordable option, especially if you opt for a secured loan

Can allow you to get the equipment you need for your business in order to grow

Cons of equipment financing

More expensive than saving up to buy the equipment outright

Payments can be a hindrance on your business cash flow until the loan is paid off

Can seriously damage your credit or even put you out of business if you can’t make the payments