Small businesses often have limited capital or cash reserves to finance large purchases. Yet they rely on equipment to compete in the marketplace, serve customers, and keep their doors open. From office equipment and technology to agricultural and farm equipment, small businesses need access to reliable, competitive financing or leasing options to obtain the equipment they need to generate revenue and support growth.
If your business is struggling to understand your financing options or find competitive equipment lease financing companies, it helps to work with an expert. Here is your ultimate guide to mastering small business equipment leasing in Chicago, IL.
Benefits of Quality Equipment Finance Options for Small Businesses
Equipment financing allows your small business to acquire critical equipment with lower upfront costs and predictable monthly payments. You can preserve cash flow, better manage your budget, obtain access to the latest and most innovative equipment available, and remain competitive with other businesses in your industry. Here is a closer look at the benefits:
- Preserve Your Cash Flow – Rather than making a huge upfront investment in new equipment, you can lease or finance equipment to ensure a fixed monthly payment. This allows you to keep cash reserves available for operational needs and growth opportunities while also securing the equipment necessary for success.
- Maintain Financial Flexibility – Equipment financing often offers flexible repayment structures, terms, and options. You can choose a plan that fits your budget and needs so that you can retain financial flexibility.
- Stay Ahead With Modern Technology – Leasing or financing gives you access to the newest, most modern equipment. You can try out new features that allow you to improve efficiency and productivity, and stay competitive without having the risk of a huge financial investment.
- Enjoy Significant Tax Advantages – In some cases, you can deduct interest payments on your loan or depreciate the equipment to reduce your taxable income.
How Does Equipment Leasing Work? Different Types of Leases
Equipment leasing requires that you enter into a written short-term or long-term contract with a lender or financing company. Your equipment will serve as collateral for your loan, which means that it may be repossessed if you make a late payment or fail to meet repayment terms. The equipment is still owned by another company, but you can use it throughout the lease or financing period.
At the end of this period, you can pay the remainder of the purchase price and keep the equipment, return it for a newer model, or return the equipment and exit the contract without further obligation. The most common types of small business equipment leases are:
- Capital Lease – A capital lease, or finance lease, is more like a short-term loan. You can use the equipment for the period of the lease and then exercise your option to buy the equipment at a reduced price at the end of the term. You then take on ownership-like responsibilities.
- Operating Lease – An operating lease, also called a Fair Market Value (FMV) lease, is a short-term lease that helps small businesses avoid the risk of ownership and the obsolescence of equipment. You can use the equipment during the lease term, and at the end, you can return it, renew the lease, or purchase the equipment at its fair market value.
- Lease-to-Own – Also called a purchase upon termination contract, this is ideal for small businesses that want to eventually own the equipment outright. A portion of each of your monthly lease payments will go toward the total purchase price of the equipment. At the end of the lease, you will own it outright.
A Step-by-Step Guide to the Equipment Leasing Process
The equipment leasing process for small businesses requires that you determine your specific needs and budget, shop around for the most competitive rates, paint your business in the best light, and negotiate for the most favorable lease terms. Here is a step-by-step guide to understanding what to expect:
- Assess Your Needs and Budget – You must start by evaluating your company’s immediate and long-term equipment needs. Research available equipment to determine its projected lifespan, efficiency, features, and value to determine how it can aid you in meeting your company’s day-to-day needs and reaching your long-term goals. Set a budget for monthly payments that aligns with your projected revenue increases and financial goals.
- Research Leasing Companies – Next, research leasing companies to determine which are the most competitive and reliable. Determine what requirements they impose for leases or financing agreements, and check your company’s credit score. Make sure you compile a list of companies that offer the specific terms or services you require.
- Gather Your Documentation – Gather up all of the financial documentation required to apply for a lease. This typically includes credit reports, balance sheets, income statements, and tax returns.
- Apply and Compare Offers – Fill out applications with multiple different lenders so that you have optimal leverage for negotiation. Then compare offers to determine which is the most competitive.
- Negotiate and Finalize the Agreement – Use your competing offers as leverage to negotiate your agreement. Try to obtain the ideal interest rate, monthly payment, and lease terms. Then finalize the agreement in writing – never enter into a verbal-only or unwritten contract.
Pro Tips for Mastering Your Equipment Lease
If you don’t have a lot of experience negotiating small business equipment leases, it’s easy to make a mistake or get overwhelmed. Here are some pro tips for mastering the process:
- Scrutinize the Fine Print – Don’t make the mistake of assuming that the lease was written with your best interests in mind. If possible, have it reviewed by a contracts lawyer or your accountant to make sure there are no surprises hidden in the terms. Pay attention to payment schedules, hidden fees, soft costs, insurance requirements, and repercussions for late or missed payments.
- Discuss the Flexibility of Terms – Be prepared to negotiate the terms with the lender. If possible, seek professional assistance in negotiating. Do your best to ensure the most favorable monthly payment amount, interest rate, schedule, fees, penalties, and other clauses and terms.
- Understand End-of-Lease Options – Finally, be sure you understand the end-of-lease options. Know when to return the equipment and in what condition, what your options are for purchasing or upgrading the equipment at the end of the term, and how to go about returning it or negotiating a longer lease period.
Call ELGA to Equip Your Business for Success
Stop letting equipment costs hold you back. With the right leasing strategy, you can get the tools you need to grow and thrive. Equipment Leasing Group of America offers innovative financing with a relentless commitment to excellence in financing solutions. We serve small to midsize companies with expert equipment financing solutions that extend beyond the reach of conventional lenders.
Our specialists can guide you through the process of applying for ongoing CapEx funding, turnaround and recovery CapEx funding, and more. Call now or reach out to us online to explore your options for small business equipment leasing in Chicago, IL, and the surrounding areas.