Ok, now you've got your business going, and you need some more money for extra equipment. What to do. Should you lease or get a small business loan?
Sometimes this can be a thorny issue. Quite often you have a very good relationship with your bank. You probably have a business account there and perhaps have an existing loan. Your relationship with the loans officer and/or bank manager is good. But what is the most cost effective way to borrow, and more importantly, what is best for you financially.
Here's what you might want to do. Make these comparisons. Leasing versus small business loan.
Loan – your bank may ask you to provide a 10-20% down payment on your loan. This is not good, as it ties up money that you could better use in your business.
Loan –many banks will give you a loan as long as you maintain a certain minimum balance in your business account. Once again, this ties up money that you could better use in your business.
Loan-when financing equipment, your bank may put a "blanket lien" on your business, giving them potential ownership. This may make it difficult if you need any future financing.
For small and mid-sized businesses, leasing is perhaps the most common method of obtaining capital equipment.
Leasing - quite often, leasing companies can approve a request of up to $75,000 within a couple of hours.
Leasing – also, a request of $75,000 from a leasing company can be processed with a one page credit application, versus the many pages a bank may require.
Leasing – you may have many more payment plans and purchase options, to meet your needs, versus banking.
Leasing – maybe most importantly, using leasing to acquire capital equipment frees up your business to preserve cash and banklines for everyday needs—such as rent and payroll.
In the end, the cost of leasing is usually less than bank financing. But as we always recommend, do your own homework. You must be satisfied that what you are doing is the best for you and your company.
