Explanation of leasing and asset financing
When starting a small business, you must acquire certain assets. Since cash flow is one of many challenges for startups, you are probably concerned about affordability, as one-time payments to buy expensive equipment are often not an option. In these cases, equity financing is a great solution and there are several options to choose from depending on the needs of your business.
Contract for rent or purchase in installments
Asset financing, such as leases and installment purchase agreements, allow you to divide your asset payments into monthly installments so that you can invest in assets with minimal impact on your cash flow.
The lease explains
When you sign a lease, you pay for the asset to be used. Leasing generally does not require a deposit, which makes it attractive to entrepreneurs. Leases can have different terms, from a month to a few years. One of the advantages of the lease is that you can renew the contract after the contract ends and return the property to the bank or make an offer to buy your property.
Another benefit of leasing is that you always have access to the latest version of the asset. Once the lease expires, you can sign a new lease and buy the latest machinery available so your business can offer the best product or service to your customers. Generally, the lease also includes service or maintenance packages that can save your business considerable costs, as the costs are usually fixed costs.
Explanation of the installment sales contract
Entering into an installment purchase contract means that once the contract has been fulfilled, you will be the owner of the asset. Sales contracts generally require a down payment equal to a percentage of the asset. Sales contracts work in a similar way to rental contracts; you pay monthly. The difference is that at the end of your installment agreement, you are the owner of your estate. However, with installment purchase agreements, you should be aware that repaying your asset each month can cost you significantly, sometimes up to 25% more than the value of your asset. The benefit of purchasing assets through an installment purchase agreement is that you do not need to request overdrafts or any type of loan to pay off your assets. No guarantees are required for installment purchase contracts. Since you are the owner of the asset after the contract is signed, you can sell it at a later date, even if the value has depreciated significantly over the life of the contract. However, you do get some return on your investment, which is not the case when you take out a lease.
What is the best option for you
To find out if a rental or installment agreement is right for you and your business, make an appointment with your customer advisor at your bank. He or she can discuss the different options with you so that you can make an informed decision. In these cases, equity financing is a great solution and there are several options to choose from depending on the needs of your business.
