COMPARING EQUIPMENT LEASE VS. LOAN: Which one is best for your business?

Investing in capital expenditures for purchasing equipment comes with two great options: leasing or acquiring a loan. Companies across a wide swath of sectors - from construction to agriculture and mining to transportation - gain substantial economic benefits by utilizing these possible financing choices.

Both of these routes come with their own distinct advantages, but, perhaps most importantly, they both give you access to best-in-class technology along with the ability to optimize your budget. In addition, partnering with a captive finance company to lease equipment or obtain a loan gives you an experienced partner invested in your success.

Compare the features available with these two options and see which one best suits your business's current needs.

Advantages to leasing heavy equipment

You typically need little to no money for the initial down payment, which provides you with instant access to the equipment required to succeed. This frees up your resources, allowing you to re-allocate funds previously earmarked for buying new machinery to other pressing priorities, such as payroll or acquiring new office space.

Another attractive incentive to equipment leasing is that you can usually deduct your lease payments and depreciation from your taxes, which provides even more savings.

Equipment leasing payments are also typically less expensive than a loan note.

Lowering the overall debt on your balance sheet also improves your debt-to-asset ratio if you have equity in assets. This lets you clean up your budget and make more accurate financial projections for the upcoming quarters. 

Once you reach the end of the lease, you're no longer responsible for the equipment. This frees you from accumulating obsolescent machinery that bogs down projects or simply ends up collecting dust in a storage shed. 

Flex Leasing

Leasing equipment from a captive finance company also has a flexible return or purchase option. This type of flex lease incorporates an option that lets you either return or purchase the equipment outright at predetermined intervals, known as "outs," before the lease ends.

For example, say you take advantage of this end-of-term option to lease a piece of equipment for 60 months. After 36 payments, you can either buy the machinery, continue with your current lease agreement or return the equipment. This financial flexibility lets your company respond to shifting market trends, whether that be a market downturn or a seasonal upswing.

Advantages to acquiring heavy equipment on loan

Using a loan from a captive finance company for your equipment purchase offers several advantages. In addition to providing you with upgraded tools to compete in a crowded market space, you get to keep the equipment once the loan has been paid off. For many companies, that's one of the key selling points.

There are also several other benefits to obtaining a loan to finance equipment. Under IRS tax code Section 179, you can claim up to $500,000 as a deduction toward the purchase of the equipment. After years of altering the threshold and voting on last-minute extensions, the U.S. Congress recently made this deduction amount permanent. This gives business owners more stability for drafting new budgets and making more accurate financial projections, without having to worry if the deduction amount might decrease suddenly. 

Partnering with a captive finance company

With decades of industry experience helping similar companies grow, a captive finance company has the capabilities and know-how to collaborate with you on your immediate and long-term strategies for expanding your business.

The people you're working with at a captive financing company are industry experts, and their knowledge extends beyond just the financial side of things, such as the business cycle, the market and the industry you're operating in.

This means they're going to make sure you leave not only with the best product offering, but also the flexible and sustainable financing needed, whether it's leasing equipment or obtaining a loan. Further, a captive finance company offers on-call and on-the-ground support, along with one-stop shopping for all your construction equipment financing and insurance needs.

Click here to learn more about the benefits of equipment leases and loans from a captive finance company.